July 2017 Leading Economic Index

America’s economic expansion should continue in the months ahead according to the July 2017 release of the Conference Board’s Leading Economic Index (LEI).  July’s uptick of 0.3 percent follows an impressive gain of 0.6 percent in the prior period, suggesting June’s jump was more than just a one-off fluke.  This broad collection of forward looking indicators even points to the possibility of output accelerating in the back-half of this year. 

Improvements within the indicator were widespread.  Eight of the ten components gained, with building permits being the sole decliner and the average workweek for production workers remaining unchanged.  Interest rates led the LEI higher as the difference between the overnight lending rate banks charge each other and the 10-year treasury yield remained nearly identical versus the June.   Credit conditions improved according to the Conference Board’s proprietary Leading Credit Index.  Another strong contribution came from the Institute for Supply Management’s new orders for consumer goods and materials.  Finally, consumer expectations for business conditions continued its string of improvements to start the third-quarter.

Also included in the release is a coincident indicator.  This is designed to help understand the current condition of the economy and, in theory, should follow contours of gross domestic product (GDP).  July’s iteration is promising for the current quarter as it accelerated after slowing at the end of the second quarter 2017.  

America’s expansion remains intact, and the LEI suggests the virtuous portion of the business cycle is poised to continue.  From the vantage point of this forward looking indicator, there is no recession on the horizon.  Of course, the caveat to the previous statement is that the LEI and other leading indicators have a limited view into the future and are unable to predict exogenous shocks (e.g. geopolitical issues or natural phenomena) which might push an economy off-course.  Notwithstanding these perennial concerns, America’s economy continues showing signs of its current sure-footedness.