US: Leading Indicators

Mon Nov 20 09:00:00 CST 2017

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.6% 0.3% to 1.2% 1.2% -0.2% 0.1%

A swing higher after a swing lower is October's hurricane result as the index of leading economic indicators hit Econoday's high estimate at 1.2 percent. September was initially posted as a 0.2 percent decline and, in another positive, is revised to a 0.1 percent gain.

Unemployment claims were the biggest swing factor between the months, pulling the index 0.21 percentage points lower in September as those hit by the hurricanes filed first-time claims, then adding 0.45 points as claims fell back. October strengths also include jumps in building permits and the factory workweek. ISM new manufacturing orders were strong positives in both months as were, as always, the yield spread and specifically short-term interest rates.

Hurricane effects made their mark on the LEI and the net message from September and October together is year-end acceleration for the economy.

Market Consensus Before Announcement
Hurricane factors including higher jobless claims and a shorter workweek pulled down the index of leading economic indicators by 0.2 percent in September. But claims have since fallen back while the workweek has climbed, these together with a jump in building permits point to strength for October's LEI. Forecasters see the LEI rising 0.6 percent.

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.