Carpe Diem

Leading economic index points to steady economic growth

lei

The Conference Board reported today that its Leading Economic Index (LEI), a 10-variable composite index measure that forecasts the future direction of the US economy, increased to 94.1 in January, the highest level for the index since June 2008 (see chart).  The 0.2% increase in January followed increases of 0.2% in December, 0.2% in October and 0.5% in September (the index was unchanged in November).

Conference Board economist Ataman Ozyildirim commented: “The U.S. LEI rose again in January, pointing to a slow but continued expansion in economic activity in the near term. Despite continued weakness in manufacturers’ new orders and consumer expectations, improvements in housing permits and financial components helped boost the LEI in January.”

Conference Board economist Ken Goldstein commented: “The indicators point to an underlying economy that remains relatively sound but sluggish. Credit use has picked up, driven in part by relatively strong demand for auto loans. The biggest positive factor is housing. The housing market is now at twice the level reached during its recessionary lows, and will likely continue to improve through the spring, delivering some growth momentum to the labor market and the overall economy. The biggest risk, however, is the adverse impact of cuts in federal spending.”

MP: The Leading Economic Index has been trending upward since the summer of 2009 when the recession was coming to an end. The gradual, but ongoing increases in the leading index over the last year point to a continuation of slow, but steady growth in the “plow horse economy” – the term used frequently by Brian Wesbury and Bob Stein to describe the plodding nature of the US economy and recovery in recent years. Certainly nothing spectacular this year to look forward to in terms of economic growth, but nothing yet to indicate a serious slowdown or recession on the economic horizon.

6 thoughts on “Leading economic index points to steady economic growth

  1. Given the USLI leads the US economy (as measured by US Industrial Production) by 9-12 months, this indicates US economic growth into late 2013.

  2. looks to me like the whole rise and then some was driven by financial makers like bond spreads and equity prices which, in turn, are being heavily manipulated by the fed.

    i’m not terribly convinced that this reading is meaningful.

    end qe and this index would fall apart.

    • The consumer has been a major factor in keeping this recovery going. Retail Sales (excluding autos) are at record highs, both in real (inflation adjusted) and nominal terms. The 2.8% annual growth rate isn’t spectacular, but it’s not terrible either.

      I’d like to point out, Juandos, that the USLI is just sending messages about 2013. The tax to which you refer goes into effect in 2014. It will be one of the factors to tip the economy into a mild recession in 2014, but obviously won’t have any effect on 2013.

      The other consumer-borne tax is the payroll tax hike (before I continue, can I just say how I love how it’s called the American Tax Relief Act of 2012? I mean, it was passed in 2013 and it raised taxes. That is a beautiful piece of propaganda right there). Now, the payroll tax hike was 2%. For the average American, that works out to about $40 less per week in their paycheck. That’s not a lot. The effects of the hike will be cumulative rather than immediate (as was clear in January’s Retail Sales numbers. Not a bad month at all). We won’t really start to see major slowing in Retail Sales until late this year.

      • The consumer has been a major factor in keeping this recovery going. Retail Sales (excluding autos) are at record highs, both in real (inflation adjusted) and nominal terms. The 2.8% annual growth rate isn’t spectacular, but it’s not terrible either.

        Not terrible. Really? If the Fed has to keep exploding its balance sheet and buy tens of billions of mortgage paper each month and Fed governors admit to manipulating the markets in public speeches what makes you sure that any of the ‘recovery’ is sustainable? I see Sears, Radio Shack, Wal-Mart, Best Buy, K-Mart, and other retailers close stores across the nation because their sales are falling as Main Street is having trouble. The actions that are taken are mainly geared towards helping Wal Street. I suspect that the Fed’s experiment will end badly. And the economy will suffer for it.

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