Leading Indicators Slowing But Still Growing

Leading Indicators Slowing But Still Growing

January 29, 2020

Leading economic indicators barely grew year over year in December 2019.

The Conference Board’s Leading Economic Index (LEI), a composite of leading data series, fell 0.3% month over month in December. However, as shown in the LPL Chart of the Day, the LEI rose 0.1% year over year in December, pointing to economic growth ahead.

The LEI, which we include as one of the “Five Forecasters” of our Recession Watch Dashboard, has yet to turn negative this economic cycle, even though it has come close over the past few months. That threshold is important, as the index has fallen negative year over year before all nine recessions since 1955.

Three of the LEI’s 10 components declined, however. The LEI’s gauge of unemployment claims fell 0.2% month over month, its biggest decline since October 2013. Initial jobless claims spiked to a two-year high at the beginning of December due to seasonal volatility around the Thanksgiving holiday. Unemployment claims have dropped steadily since then, so we don’t think claims are pointing to job-market cracks.

The LEI’s measure of new manufacturing orders slid 0.18% month over month in December, its biggest drag since April 2009. Continued weakness in manufacturing is concerning, especially because we’ve been expecting some stabilization in that sector amid U.S.-China trade progress. The countries signed a phase-one trade agreement January 15, so we hope tangible steps forward on trade will stoke global demand. Even if demand picks up, it may take the sector several months to recover.

“Manufacturing continues to dampen economic growth potential,” said LPL Financial Chief Investment Strategist John Lynch. “Luckily, solid consumer activity has helped support the economy during manufacturing’s malaise, and we’ve likely seen the worst of the global downturn.”


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