Leading Economic Index Insights

US leading indicators fell again in March. Number remains above the recession-predicting threshold. The US Leading Economic Index (LEI) declined in March, according to today's report from the Conference Board. https://lnkd.in/gCBj3pjQ. This was a sharper contraction than February's small 0.2% drop. The LEI has fallen in all but three months since January 2022, reflecting a continuing pattern of weakness in this forward-looking indicator. Over the past six months, the index is down 1.2%. According to the Conference Board this is well above the level that would typically signal a recession. However, they nevertheless revised downward to 1.6% their prediction for 2025 real GDP growth: "The slower projected growth rate reflects the impact of deepening trade wars, which may result in higher inflation, supply chain disruptions, less investing and spending, and a weaker labor market.” The LEI is a composite index calculated from ten indicators that have historically had some power predicting future economic growth or contraction. In March, the biggest negative contributions came from consumer expectations, which have plummeted recently, stock market losses, and new orders for manufactured goods. The most significant—if small—positive contributions came from building permits and average weekly hours worked in manufacturing. The track record of the LEI and many other recession warning indicators has been poor over the post-pandemic period. Between March 2022 and November 2023, the LEI signaled a recession that never came from. Another oft-cited indicator, an inverted yield curve (usually measured as a negative premium of the yield on the ten-year Treasury bond over the two-year bond) consistently signaled a pending recession from July 2022 through last August. For that reason, the LEI is probably best viewed as an indicator of future economic strength rather than a recession predictor. #LeadingEconomicIndex #LeadingIndicators #ConferenceBoard #LEI #recession

Traditionally, we have been taught that indicators like GDP, GNP are the primary measures to assess the health of an economy. However, the economic landscape is far more nuanced, with a variety of indicators providing deeper insights into its performance. Beyond GDP and GNP, economists rely on a range of indicators to gauge economic health. Here are three such indicators: 📌 The Leading economic index: • The Leading Economic Index (LEI) is a tool that economists use to predict how the economy will perform in the future. It is like a crystal ball that gives them an idea of what might happen next. • The LEI is made up of several different indicators that are known to change before the economy as a whole changes. These indicators include things like the number of hours people work, the number of new orders for goods, the stock market etc. • Economists look at these indicators and see if they are going up or down. If many of the indicators are going up, it suggests that the economy will probably grow in the future. If they are going down, it suggests that the economy might slow down or even shrink. 📌 Purchasing Managers' Index: • The Purchasing Managers' Index (PMI) is a measure of how well a particular sector, like manufacturing or services, is doing. It's like a report card for that sector. • To calculate the PMI, surveys are sent to purchasing managers in different companies. These managers are responsible for buying things for their companies. They answer questions about things like new orders, production, hiring, and deliveries. • The PMI is a number between 0 and 100. If the PMI is above 50, it means the sector is doing well and growing. If it's below 50, it means the sector is not doing well and may be shrinking. • The PMI is published regularly, usually on a monthly basis, by organizations like IHS Markit or the Institute for Supply Management (ISM) 📌 Capacity Utilisation Rate: • As the name suggests, the capacity utilization rate is an economic indicator that measures the extent to which a company or an entire economy is utilizing its production capacity. • The capacity utilization rate is calculated by dividing the actual output or production level by the maximum possible output that could be achieved under ideal or full capacity conditions. The result is expressed as a percentage. • A high capacity utilization rate indicates that a company or sector is operating close to its maximum capacity, suggesting efficient utilization of resources. It can be a positive sign of productivity and economic growth. • On the other hand, a low capacity utilization rate may indicate underutilized resources, inefficiencies, or economic downturns. By considering these additional indicators alongside traditional measures, economists gain deeper insights into the dynamics and performance of an economy, enabling them to make more informed decisions and predictions. Do you know any more such indicators? Let me know in the comments below 👇

While dieticians typically recommend lighter, smaller portions for evening meals, this week’s calendar is back-loaded with an all-you-can-eat buffet of economic releases — leavings markets with mere morsels of data on Monday and Tuesday.   The first hearty dollop of potentially market-moving news comes on Wednesday, with the release of minutes from the Federal Reserve’s July policy meeting. Investors will be parsing the text for any hints about the Fed’s rate path. Chair Jerome Powell’s speech at the Fed’s annual Jackson Hole summit on Friday will also be under scrutiny for the same reason.   Thursday brings a fresh batch of data highlighting employment, manufacturing and service-sector activity, and leading economic indicators, among other releases. Here’s what we’ll be focusing on:   ➜ First-time and continuing jobless claims, which have been fairly range-bound in recent weeks. ➜ The Philly Fed Index, a regional survey of manufacturing that’s been quite volatile. After June’s 4.0 level, the index jumped to 15.9 in July but is expected to drop to 5.5 for August, based on consensus forecasts. ➜ Preliminary August readings of Purchasing Managers Index (PMI) activity. The S&P Global/Markit manufacturing PMI is pegged to come in at 50 (essentially neutral, neither expanding nor contracting), while the services PMI forecast calls for a modest dip from July’s 55.7 to 54.0 (still solidly in expansionary territory). ➜ The Conference Board’s Leading Economic Index, or LEI (-0.3% for June), is expected to come in flat (0.0%), which would signal slight optimism about the future direction of the economy.   Meanwhile, a strong 2Q reporting season for the S&P 500 Index is wrapping up, with earnings growth at around +12% on a year-over-basis, well above the 4.9% estimate on June 30. The healthy showing has been led by +30% earnings growth for tech-oriented names, and demonstrates the resilience of the corporate sector during what continue to be uncertain times. For ongoing market views, subscribe to my weekly market commentary: https://lnkd.in/g_QSbHBb   What's catching your eye in the markets next week?