US: Leading Indicators

Thu May 17 09:00:00 CDT 2018

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

A rise in the factory workweek and a still favorable rate spread in the bond market (short rates lower than long rates) are the leading positives in April's index of leading economic indicators, up a solid 0.4 percent. Holding back the index in April were the stock market and a step back in building permits. Though still solid, gains in the LEI have been easing back which the report notes lowers the chances that economic growth will accelerate later this year.

Market Consensus Before Announcement
The index of leading economic indicators had been posting a run of very strong readings though the gain back in March, at 0.3 percent, was held down by a temporary rise in unemployment claims and a dip in the factory workweek. But with the stock market soft and ISM orders slipping forecasters aren't looking for much acceleration in April with a 0.4 percent gain the consensus.

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.