Index of Leading Economic Indicators (LEI): ‘ absit invidia’.

 

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Leading Economic Indicators (LEI) 

Takeaways

+ The LEI has been on an incredible run of growth with the latest print representing the 15th consecutive month of gains for the index. Note, November and October’s gains taken together represent the largest back-to-back gains the index has experienced in over six years.

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+ Six of the index’s components experienced positive growth while three components contracted. Overlayed, with jobless claims data slicing 0.13pp from the headline, the greatest detractor from the otherwise unequivocal momentum.

+ Taking a lock and the Hard vs. Soft data comment to the index; ISM new orders data and consumer expectations contributed 0.17pp, and 0.15pp, respectively.  The combination of the two indicators, Hard data and sentiment survey data confirms the expectations of solid economic growth continuing into 1H 2018.

+ Lastly, note the interest rate spread between stock prices and the US benchmark contributed 0.13pp to the LEI. Furthermore, the sustained equity bull run of 2017 supplemented the index by 0.06pp.

To wit:

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Index of Leading Economic Indicators (LEI)

Market Sensitivity: Low to medium.

What Is It: An index designed to predict the economy’s direction.

Most Current News Release on the Internet: www.conference-board.org/data/

Home Web Address: www.conference-board.org

Release Time: 10:00 a.m. (ET). The report is published three weeks after the end of the reporting month.

Frequency: Monthly.

Source: The Conference Board.

Revisions: Usually minor, but can be more significant at times.

Bernard Baumohl. The Secrets of Economic Indicators

 

 

Market Impact
If the new LEI series is successful in signaling upcoming turning points in the economy, it will certainly be watched more closely by the investment community. But up until 2012, reaction to the LEI was muted because it rarely surprised. For one, much of the data that made up the index had already been published days or weeks earlier. Second, money managers felt that the forecasting track record of this series was short of divine. As a result, the release sparked little excitement in the markets. That could all change with the new methodology.
Bonds

Professionals in the fixed-income markets spend little time musing over the leading indicators series because it’s considered old news, and they pay virtually no attention to the coincident and lagging gauges. Perhaps these measures will generate more talk when the economy is believed to be close to a turning point, with yields possibly inching up or down a basis point or two. Otherwise, the market has largely discounted the LEI since the data underlying it has already been published.

Stocks

The LEI has a slightly greater impact on equity prices. During a recession, stock market investors search for any corroborative signs that point to a recovery and higher profits. If the LEI index posts several consecutive gains, investors feel more confident that an economic rebound is in the offing and thus raise their equity holdings. In contrast, any report that reinforces the notion that the economy is close to peaking could depress share prices, since it casts a cloud over future earnings.

Dollar

Assuming that the dollar is not being influenced by other factors, it will likely follow the same path as the stock market. Consecutive monthly rises in the LEI encourage foreign investors to buy dollar-based securities. Stronger U.S. economic growth brings with it higher interest rates and greater profits, all positive influences on the dollar. A series of falling LEI indexes would make the greenback less attractive to hold.”

Bernard Baumohl. The Secrets of Economic Indicators

 

quote-economics-is-a-very-dangerous-science-john-maynard-keynes-243558

-R.W.N II

 

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