Leading Indicators Rise Two Months in a Row

As you might expect, it was quite an under-reported event last Thursday when the Conference Board released its report of economic indicators.

Why was it under-reported? Because the data actually surprised analysts when it came in with a key positive number for the month of January. The Index Of Leading Economic Indicators for the second month in a row showed an increase in economic activity.

The Conference Board on Thursday said that its January index of leading economic indicators rose 0.4 percent. The majority of economists surveyed had expected no change in the index.

The index forecasts economic activity for the next three to six months based on 10 economic components. This is also the first time since the big chill in October that 5 of 10 economic components have turned positive.

What was no surprise was that the single biggest boost to the index was the real money supply as the Fed continues to pump more money in circulation. Other factors that increased in January included: the interest rate spread, an index of consumer expectations, and manufacturing orders for non-defense and consumer goods.

In December the index had increased 0.2 percent following a drop of 0.7 percent in November.

More current data is out this week and it will likely show -- much like the Conference board -- that the intensity of this recession is indeed easing.

Conference Board economists (like many others) see a return to growth in the second half of 2009 and solid growth in 2010.

Comments

[Dave Wrixon]

I thnk the market is beginning to understand how dodgy most of the statistics are right now. That point was hammered home by the big revsion in GDP for the fourth quarter.

So, when we are hearing good news, the natural reaction is to be highly skeptical. This makes is all the more important for the Government to start telling it as it is. Nobody believes the stats right now, so how is evidence of an upturn ever going to be credible?

2009 Mar 02 04:55 AM

[Zoltan L. Kovacs]

The question is on what the growth in 2009/2010 will be based on. Let's hope for something sustainable.

2009 Mar 02 05:07 AM

[da'zman]

M2 growth alone is not enough to stave off the contraction in credit. The Fed is replacing high velocity credit with low velocity cash, a formula that might help put a floor in the economy at some point but will not lead to any significant rebound in growth. If you think consumer credit will become easier and cheaper to get then you should be buying risk assets with both hands. If not then stay with the bear trend.

2009 Mar 02 05:39 AM

[kelm]

Any composite measure of something with very disparate parts will give odd readings when in extreme situations. That is where we are at. What you are seeing is anomalies in the weighting of the various components of the index. Money supply increase in normal times would imply increased economic activity in 3-6 months. Does it now?

2009 Mar 02 09:39 AM

[Alphameister]

Recent modest gains by the LEI do NOT "show an increase in economic activity" but should point to some stabilization 3 to 6 months out. Money supply growth is normally the most potent of these indicators, but velocity of money use is contracting even faster than the aggregates are expanding. Let's hope the stimulus package can stem the slide in velocity.

2009 Mar 02 11:05 AM

[Socialism cannot compete!]

The BIGGEST leading is way down: socialism does NOT work!! When you have an increase in money supply, and its due to big government spending, that is BAD news, not good!! And when you have a government whose policy is penalizing success and propping up failure -- that is a leading indicator for a decade or more of downtrend. This is NOT mere conjecture -- these policies have always had those results historically. They are INHERENT to economics and politics -- smaller government, lower taxation (across the board!!), and more freedom is the path to prosperity!! Not higher taxation on the successful, and dependency-creation among those on the bottom!

2009 Mar 02 12:30 PM

[Duude]

Of course, its always nice to hear something positive when negativity surrounds us. But when considering the progress we're making in dealing with the cratering mbs market, the lack of a solution with the CDS market and the snowballing collateral damage, we need to ask ourselves how much credence to give it. It was popular to hammer on Paulson and diagram the parallels of a drop in the market whenever he spoke. Geithner isn't even speaking. They haven't even completed their vetting of Treasury personnel. We're done!

2009 Mar 02 12:30 PM

[bbowen7]

What is the plan? The Bush administration did an OK job after the Lehman collapse of getting the TARP, and making capital infusions into the banking system to shore it up. So this administration - no plan for AIG; no plan for toxic assets; no clarity about nationalization of banks (particularly from the president). But lots of spending.

No wonder the markets are accelerating down.

2009 Mar 02 12:52 PM

[Fred Voetsch]

The ECRI reports a drop in LEI's for its latest reporting period:
www.businesscycle.com/.../

In addition, here is a quote from the Conference Board's latest report:

"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."

2009 Mar 02 01:13 PM

[robert.b.ferguson]

Market is down under 7,000 for the first time in twelve years. Many investors are long in cash because there is no safe haven and now we are wondering if cash is safe. The real problem is that there is no plan in the administration's plan. All the rhetoric and flowery speeches in the world will not bring the economy back. At some point there will have to be a coherent plan other than lets throw money at this.

2009 Mar 02 05:44 PM