US: Leading Indicators

Thu Oct 19 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Leading Indicators - M/M change 0.1% 0.0% to 0.3% -0.2% 0.4%

Hurricane-driven spikes in jobless claims pulled down the index of leading economic indicators in September which, at minus 0.2 percent, came in well below Econoday's low estimate. But reversal this month in claims, evident in the 44-year low posted earlier this morning for initial claims in the October 14 week, points to a sizable positive effect for October's LEI. But September's index was also pulled lower by building permits where strength has been uneven all year and also 2 indicators on the factory sector: the workweek and capital goods orders. In contrast the biggest positive factor in the month is ISM's new orders index which is at a 4-year high and continues to signal unusual strength for the factory sector. Among other components, the yield spread once again was a big positive reflecting low short-term interest rates. The signals are mixed in today's report, especially for the factory sector, but excluding distortions tied to jobless claims, the trend is positive.

Market Consensus Before Announcement
Low short-term interest rates, high consumer expectations, and ISM manufacturing orders have been underpinning the index of leading economic indicators which rose 0.4 percent in August. But the hurricane-related spike in initial jobless claims will hold down September's results were the Econoday consensus is for only a 0.1 percent gain.

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.