December 2018 Leading Economic Index

Our economy is likely to move along at about the current pace for the next few quarters according to the Conference Board’s Leading Economic Index (LEI).  Their December 2018 release edged down 0.1 percent after rising 0.2 percent in November.  Versus a year ago, this index is up 2.1 percent.

Our government’s shutdown kept the Conference Board from fully measuring the index.  This series is comprised of 10 components, and two of the constituents (new orders for consumer goods & materials as well as building permits) went unreported because of the tussle in the Beltway.

Readings for the remaining eight components were mixed.  Let’s start with the good news.  The average weekly claims for state unemployment insurance fell which helps the total.  The Conference Board’s proprietary measure for credit improved, suggesting banks will continue increasing their loan volume.  The interest rate spread between overnight Fed Funds and the 10-year Treasury bond remained positive; however, the reading for this component has been cut in half since September.  Consumers continue to be sanguine regarding expectations for business conditions.  Finally, the average workweek for production workers was unchanged so it had no impact on the total.

Positive readings for several components were overwhelmed by a couple of really bad readings.  New orders from the Institute for Supply Management dropped 0.09 from the total. This has been a leader for this indicator, so December’s tally represents a dramatic change.  Finally, falling stock prices in December hurt the index by taking away 0.23 from the headline figure.  Combined, these two components put the headline into negative territory.

Atlas isn’t sounding any alarm bells just yet.  Sure, many indicators are showing signs of deceleration, but this is normal within the virtuous part of a business cycle.  This LEI release leaves a lot to be desired, but a single month setback is hardly enough to suggest a recession is developing.  Atlas will continue monitoring the various releases and look for signs of growing weakness.  If we see something more material developing, you’ll read about it here.