February 2019 Leading Economic Index
Submitted by Atlas Indicators Investment Advisors on March 29th, 2019
Economic output is poised to move ahead in the months ahead, albeit at a moderating pace, according to the Conference Board’s Leading Economic Index (LEI). This 10-component indicator moved up 0.2 percent in February after falling 0.1 percent to start the year. While it is not the most robust beginning, it is up so far in 2019 which is better than the disappointing end to last year in which the LEI experienced declines in each month of the fourth quarter.
Six of the 10 components increased in February. America's rising stock market had the largest impact on the total. This was followed by the Conference Board’s proprietary leading credit index (a measure of future lending). Consumer expectations for business conditions added to the total as well. Even with treasury yields at their current levels, the spread between the overnight lending rate banks charge each other (the Fed Funds Rate) and the rate on a 10-year Treasury bond remained above zero, thus contributing positively to the overall index. Orders of capital goods (think business equipment excluding aircraft) also added to the LEI as did manufacturers’ orders for consumer goods and materials. However, it wasn’t all good news.
Three of the other four components declined, and one held steady. Hours worked in the manufacturing segment of America’s economy declined. Coincidentally, average weekly initial claims for unemployment insurance increased. Additionally, the Institute for Supply Management’s New Orders Index declined. Finally, building permits held steady.
Let's face it, this indicator’s trend is not the strongest. During the six-month span ending in February, the LEI increased just 0.5 percent. Only six of the ten components are positive during the same time frame. This softness does not bode well for gross domestic product in the next six to nine months. Our central bank seems to agree with the indicator. While they may or may not consider the LEI in their forecasts, the Federal Reserve has expressed concerns about the growth rate of the American economy, and it seems like the Conference Board’s forward looking model concurs.