US: Leading Indicators

Thu Dec 17 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Leading Indicators - M/M change 0.2% 0.0% to 0.5% 0.4% 0.6%

Boosted by yesterday's strong showing for housing permits, the index of leading economic indicators rose a solid 0.4 percent in November on top of October's very strong 0.6 percent rise. Other positives include the interest-rate spread, specifically low short-term rates, and also gains for the stock market. Negatives are led by ISM's new orders index in a reminder that the nation's factory sector is being held down by weak foreign demand. In sum, the index continues to point to rising economic activity in the months ahead. Other details include a slowing in the coincident index, to plus 0.1 percent vs gains of 0.2 and 0.3 percent in the prior two months, and a solid showing for the lagging index, at plus 0.3 percent vs prior gains of 0.2 and 0.5 percent.

Market Consensus Before Announcement
Leading indicators had been dead flat since July until jumping 0.5 percent in October, in a gain helped by the month's rebound in the stock market and gains for housing permits. But October's jump aside, this index has been pointing to no more than sluggish growth for the economy. And the Econoday consensus isn't calling for much strength in November, at a 0.2 percent gain.

A composite index of ten economic indicators that should lead overall economic activity. This indicator was initially compiled by the Commerce Department but is now compiled and produced by The Conference Board. It has been revised many times in the past 30 years -- particularly when it has not done a good job of predicting turning points.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. More specifically, it was designed to lead the index of coincident indicators, also now published by The Conference Board. Investors like to see composite indexes because they tell an easy story, although they are not always as useful as they promise. The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn't necessarily reveal new information about the economy. Bond investors tend to be less interested in this index than equity investors. Also, the non-financial media tends to give this index more press than it deserves.