Leading Economic Indicators Rose Again in February
The consensus prediction of economists surveyed by Bloomberg News was that the index would rise 0.2% in February. It rose 0.3% in January and 1.2% in December. The LEI index now stands at 107.6. (Base year, 2004 =100.)
"The indicators point to a slow recovery this summer," said Ken Goldstein, economist for the Conference Board in a statement. "Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months."
Also, the Conference Board's Coincident Economic Index for the U.S. rose 0.1% in February after holding steady in January. The Conference Board's Lagging Economic Index increased 0.3% following an 0.2% decline in January.
However, the six-month change in the Leading index continued to moderate through February, with the index rising 4.4%, according to the Board's methodology. That's down from the 6.2% increase for the previous six months through September 2009. Still, the Board added that the strengths among the leading indicators "have remained very widespread in recent months," with all 10 LEI components rising over the past six months.
Key Philly Fed Index Also Rises
Separately, another closely-watched indicator showed improvement in the U.S. economy: The Federal Reserve Bank of Philadelphia's Manufacturing Survey, commonly known as the 'Philly Fed Survey,' rose to 18.9 in March from 17.6 in February, and 15.2 in January. That survey monitors manufacturing specifically in the Philadelphia region, but its results tend to correlate with the nation as a whole. Readings above zero indicate an expansion; below zero, a contraction. Economists surveyed by Bloomberg News had expected a March reading of 18.0 for the Philly Fed Survey.
Returning to the February Leading index data, four of the 10 indicators that comprise the LEI increased last month: interest rate spread, real money supply, index of supplier deliveries (vendor performance), and manufacturers' new orders for consumer goods and materials. Six fell: average weekly manufacturing hours, stock prices, the index of consumer expectations, building permits, manufacturers' new orders for nondefense capital goods, and average weekly initial claims for unemployment insurance (inverted).
The LEI index is designed to forecast likely economic conditions six to nine months in the future, although economists caution that the index is a general, multi-variable indicator, and vulnerable to revisions. Hence, investors should use it as a rough gauge of overall macroeconomic trends -- not as a metric that can precisely pinpoint economic cycle turns.
As of February, the 11-month LEI uptrend contains mostly positively news for investors. The length of the rise demonstrates that a U.S. economic recovery is taking hold, with fundamentals improving nearly across the entire economy, except in employment, improvement in which has historically has lagged overall recoveries.
The key now for policy makers and business executives alike will be to get the job market to turn positive, which will increase demand. To be sure, achieving adequate monthly job growth will be an enormous task, but once the workforce is expanding, the U.S. economy will be on a sustainable growth track.