US: Leading Indicators

Thu Oct 20 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous
Leading Indicators - M/M change 0.2% 0.1% to 0.3% 0.2% -0.2%

September was a respectable month for the economy based on the index of leading economic indicators which rose an as-expected 0.2 percent. Building permits, which include a surge in single-family homes and a giant surge in multi-family units, lead September's components which also include strength tied to the month's dip in unemployment claims. A decline in the factory workweek along with a decline in the stock market pulled September's results lower. But September's gain aside, this report has been up and down all year pointing on net to slow growth for the economy.

Market Consensus Before Announcement
The index of leading indicators is expected to reverse August's 0.2 percent dip with a 0.2 percent gain in September. Positives are expected to include September's decline in jobless claims and strength in the ISM new orders index, with negatives likely to be the factory workweek and softness in the stock market.

The index of leading economic indicators is a composite of 10 forward-looking components including building permits, new factory orders, and unemployment claims. The report attempts to predict general economic conditions six months out.

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.