Thursday, October 22, 2009

Leading Indicators Leading the Way

Since the downturn of late 2007, there has always been a little voice in my heart that says, "Watch leading indicators."

I haven't seen that many recessions yet and leading indicators haven't been around that long either. Yet, I remember vividly the last recession in 2001 kicked off its recovery in 2002 as soon as leading indicators started to head north. I have been watching leading indicators for months. It is one of the signs that leads me to think that too many people underestimate the resilience of the US economy.

The leading indicator index released by the Conference Board again suggests that the recession is bottoming out and that economic conditions will continue to improve in the near term.

After having fallen steadily since reaching a peak in July 2007, The Conference Board Leading Indicator Index (LEI) for the U.S. has increased sharply over the past half year, and its six-month growth rate has picked up to the highest rate since 1983.

The six-month change in the index has continued to pick up  to 5.7 percent (an 11.8 percent annual rate) in the period through September, up from -2.7 percent (a -5.3 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have remained widespread in recent months.

Eight of the ten indicators that make up The Conference Board LEI for the U.S. increased in September. The positive contributors, beginning with the largest positive contributor, were interest rate spread, index of consumer expectations, average weekly initial claims for unemployment insurance (inverted), stock prices, real money supply, index of supplier deliveries (vendor performance), manufacturers’ new orders for nondefense capital goods and manufacturers’ new orders for consumer goods and materials. The negative
contributors, beginning with the largest negative contributor, were average weekly manufacturing hours and building permits. [Click on the diagram to enlarge it]

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