US: Leading Indicators

Thu Feb 22 09:00:00 CST 2018

Consensus Consensus Range Actual Previous
Leading Indicators - M/M change 0.6% 0.3% to 0.9% 1.0% 0.6%

The index of leading economic indicators points to robust economic growth ahead, accelerating in January to rise 1.0 percent following a 0.6 percent gain in December.

Contributing most to the unexpectedly large gain in January were building permits, stock prices and once again ISM's new orders index, where unusually strength has not yet been translated to similar gains in government data. Steady contributions continue to come from average initial claims, consumer expectations, the interest rate spread and the report's credit index.

Market Consensus Before Announcement
Despite all the turbulence, January was still a positive for the stock market which looks to contribute solidly to the month's index of leading economic indicators. Extraordinary strength in ISM new orders will be a key positive as will the month's decline in jobless claims. January's call for the LEI is a very strong 0.6 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.