June 2018 Leading Economic Index

Economic activity seems poised to continue its upward trend according to the latest release from the Conference Board’s Leading Economic Index (LEI).  This forward-looking indicator rose 0.5 percent in June after remaining flat in May’s downwardly revised tally (originally +0.2 percent).  During the first half of 2018, the LEI increased at about a 5.1 percent at an annualized pace, slowing from 6.5 percent in the last half of 2017.

Although a few components went unchanged, most categories moved up in the period.  New orders from the Institute for Supply Management led the index’s move.  While not as strong as in May, the interest rate spread between 10-year Treasury bond and the overnight federal funds rate added the second most the total.  Also, a proprietary Leading Credit Index constructed by the Conference Board improved for the second time in a row.  Stocks added to the mix as well, putting in their second consecutive positive contribution.  New orders for manufactured goods crept back above positive after suffering a setback in May.  Finally, unemployment claims added marginally following a more pronounced fall. 

Two categories held steady, while only one came equipped with a minus sign in this release.  The average workweek for production workers was unchanged as were new orders for manufactured goods and materials.  The lone negative sign was attached to building permits which fell 0.06 percent, declining for a third consecutive period.

From the vantage point of the LEI, there is not an economic contraction on the horizon.  While the trend slowed in the first half of this year, this deceleration is not flashing any warnings of an imminent recession.  Business cycle curves do not move along perfect sine waves.  Instead, accelerations and decelerations are often asymmetric, and this mild slowing is likely just a regular irregularity.