Leading Economic Indicators Report Keeps Rising

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Thursday’s economic releases included the Conference Board’s report on the Leading Economic Index (LEI), or the leading indicators. When investors and economists hear the term “leading,” they might be inclined to believe that this will act as a prediction tool for what is coming ahead. That may be the underlying intent of the release, but much of the underlying data points included in the leading indicators are already known ahead of each leading indicators report.

The LEI rose by 1.0% in January to 108.1, and this follows a 0.6 point increase in December and a 0.4 point increase in November.

This was the fourth monthly gain for leading indicators. Bloomberg was calling for a consensus to show a gain of 0.6%. Dow Jones and Reuters both showed their consensus estimates at 0.7% for January’s leading indicators.

LEI is broken down into two subgroups: coincidental indicators and lagging indicators. The Conference Board showed that the one-point gain for January was broken down as follows:

  • The Coincident Economic Index rose 0.1 percent in January to 103.0, after a 0.3 percent increase in December and a 0.2 percent increase in November.
  • The Lagging Economic Index rose 0.1 percent in January to 104.0, after a 0.7 percent increase in December and a 0.1 percent increase in November.

What matters in the gain is that eight of the 10 components of the report were positive. Also worth noting was that the leading indicators strength was driven the most by gains in building permits and the financial/market components. It also should be noted that January’s gains in the markets were just ahead of the panic selling waves that dominated the first week of February.

Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said of the one-point gain in January:

The U.S. LEI accelerated further in January and continues to point to robust economic growth in the first half of 2018. While the recent stock market volatility will not be reflected in the U.S. LEI until next month, consumers’ and business’ outlook on the economy had been improving for several months and should not be greatly impacted. The leading indicators reflect an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.

As far as how and why much of this report is already known ahead of time, it’s not just because there is a one-month lag. There are 10 underlying economic reports, and most have already been seen or can be estimated. They are as follows:

  • Average weekly hours, manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders, consumer goods and materials
  • ISM Index of New Orders
  • Manufacturers’ new orders, nondefense capital goods excluding aircraft orders
  • Building permits, new private housing units
  • Stock prices, 500 common stocks
  • Leading Credit Index
  • Interest rate spread, 10-year Treasury bonds less federal funds
  • Average consumer expectations for business conditions

The S&P 500 was last seen up over 17 points at 2,718 and the Dow was last seen up 195 points at 24,993. Meanwhile, the yield on the 10-year Treasury note was last seen down at 2.906%, after hitting a year-high of 2.94% (not seen since on the previous day).