Index of Leading Economic Indicators Rises
The index, comprised of 10 components, is intended to signal economic trends by taking a comprehensive look at the data. This month, nine out of 10 indicators were positive. The increase was sharply higher than those in September and August -- which came in at only 0.1% and 0.3%, respectively -- and beat a forecast complied by Bloomberg, whose survey of 56 economists came up with a median prediction of 0.6%.
In a press release, a Conference Board economist explained that the October rebound of the LEI was "largely due to the sharp pick-up in housing permits," which "suggests that the risk of an economic downturn has receded." But Anika Khan, an economist at Wells Fargo (WFC), told DailyFinance that some of the increase in construction activity could be due simply to the seasonal adjustment process, rather than a genuine economic upturn. "We have to look at that particular increase with a grain of salt," Khan said.
Bernard Baumohl, chief global economist at the Economic Outlook Group, was somewhat skeptical about the index's import, saying, "There's nothing really all that surprising with the increase. If you follow what the leading economic indicators tell you, you have some idea that we've had a positive string of economic news. And this simply confirms it."
While allowing that the index "does suggest that the economic outlook has begun to brighten a little bit," Baumohl spoke ominously about events not reflected in the data: the sovereign debt crisis in Europe, political paralysis in Washington, and rising tensions in the Middle East concerning Iran's nuclear program. "If you superimpose all these risks, threats, and shocks," Bauhmohl said, "then you really have to be very careful about how you forecast what's going to happen to the U.S. economy and the financial markets in the next six months. There's just too much geopolitical risk out there for us to say with any conviction that it looks like the worst is over, the economy is coming back, and everyone should take more risks in their investments."