IB Net Payout Yields Model

Stat of the Day: Leading Economic Indicators Up Again

One of the most overlooked yet very important stats is the Leading Economic Indicators (LEI) produced by The Conference Board on a monthly basis. According to the January report, leading indicators were up 0.4% in January after a 0.2% rise in Decemeber. The Lagging Indicator (LAG) decereased by 0.1%.

Ironically most of the media and even alot finanical reporters and anlayts focus on the lagging indicators. as they indicate what has happened in the past. They are actual hard facts about what took place in the economy while leading indicators only suggest what could happen. Unfortunately or fortunately depending on how you view it, these indicators are pretty good at predicing the future economic cycle. Money Supply and Interest Rates are 2 indicators that are typically overlooked by the gernal market. They have a huge impact on how businesses and consumers act in the future but they take a while for the indicators to have an impact on the economy and its not very tangible.

As an example of how the LEI predicted this downturn, the LEI turned negative in July '07 and has remained pretty much negative until Dec '08. The stock market peaked in Oct '07 and the economy supposedly began its recession in Dec '07. Sure seems like the LEI predicted the problems that were about to occur in the market. Two postive months probably don't predict a complete change in the markets and the economy, but throw in another positive month combined with a positive stock market and we've got the makings for a turnaround. One predicted by this report, but typically overlooked by the media as it focuees on the LAGs such as labor costs, inventories, and outstanding commercial loans. Next month could be very importants as a 3rd positive month in a row might just be what the economy and market needs.

Highlights of the report:

  • The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 0.4 percent, The Conference Board Coincident Economic Index™ (CEI) decreased 0.5 percent and The Conference Board Lagging Economic Index™ (LAG) decreased 0.1 percent in January.
  • The LEI increased for the second consecutive month in January, but November and December values were revised down as new data for manufacturers' new orders became available. Between July 2008 and January 2009, the LEI decreased 1.9 percent (a -3.7 percent annual rate), faster than the decline of 1.1 percent (a -2.1 percent annual rate) during the previous six months. In addition, the weaknesses among the leading indicators have remained widespread in recent months.
  • Although the LEI has risen during the past two months, it is too soon to say the contraction in the LEI that began in July 2007 is coming to an end. The LEI has continued to decline over a six-month period in the second half of 2008, with continued widespread weakness among its components.
  • Five of the ten indicators that make up the leading economic index increased in January. The positive contributors — beginning with the largest positive contributor — were real money supply*, the interest rate spread, index of consumer expectations, 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 initial claims for unemployment insurance (inverted), building permits, average weekly manufacturing hours, stock prices, and the index of supplier deliveries (vendor performance).

Edit: S&500 closes down 1.2%. Just more proof that the markets ignore this very important economic indicating report.


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