October 2017 Leading Economic Index

Economic output is poised to continue growing according to the latest data from the Conference Board’s Leading Economic Index (LEI).  After the positively revised tally of 0.1 percent in September (initially minus 0.2 percent), this forward-looking indicator jumped 1.2 percent in October 2017.  Nearly all of the LEI’s components supported this latest uptick. 

Nine of the ten components were higher in the period.  Labor market data provided the biggest lift to the indicator as initial claims for state unemployment insurance dropped; September’s hurricane-related uptick in claims partially exaggerated this decline.  In addition to favorable labor conditions, building permits added to the enthusiasm as did new orders from the Institute for Supply Management.  The spread between the rate banks charge each other for overnight loans and the ten-year Treasury yield widened some in October, thus adding to the index.  Matching the yield spread’s contribution to the LEI, consumer expectations for business conditions improved.  Additionally, stock prices continued rising, and the average workweek for production workers increased   Orders for consumer goods also boosted the headline.  According to the Conference Board’s proprietary Leading Credit Index, lending seems to be loosening which bodes well for future output.  The only fly in the ointment was a modest downtick in capital expenditures from businesses. 

This forward-looking indicator shows no signs of recession on the immediate horizon.  Of course, these types of indicators have limited insight into the future.  It is generally thought that the LEI is capable of “seeing” about three to six months ahead.  Put another way, 2018 is teed up for a favorable economic start as 2017 winds down.