US: Leading Indicators

Fri Mar 17 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Leading Indicators - M/M change 0.4% 0.2% to 0.7% 0.6% 0.6%

Leading indicators are showing a rare string of strength, rising in February for a third month at a very strong 0.6 percent rate. Emerging strength in factory readings have been driving the gain along with continued strength in consumer expectations and low and favorable levels for jobless claims. Stock prices have also been a plus. This report is pointing to accelerating conditions for the nation's economy over the next six months.

Market Consensus Before Announcement
The index of leading economic indicators has been sending solid signals of strength for future economic growth, rising 0.6 percent and 0.5 percent in the prior two reports. The gains have reflected special strength for consumer expectations, building permits, and for advance signals on factory orders. Forecasters see February's gain for the LEI easing but only slightly, to 0.4 percent in March.

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.