Leading economic indicator: Growth likely to continue

Doug May

Doug May

May-Investments developed its own Leading Economic Indicator (LEI) to better understand an economy that for most of 2013 has been sending mixed signals.

The latest LEI readings continue to forecast economic growth during the months ahead. After weakening earlier in the year, the LEI increased in May for a second consecutive month of gains.

May-Investments developed its in-house indicator rather than rely on the Leading Economic Index calculated by the Conference Board, a business research and membership group. With the Federal Reserve adopting Enron-style off balance sheet financing vehicles to move the government’s new bond issuance out the doors and into buyers’ hands, the old economic indicators became obsolete. And the Conference Board’s new indicator remains untested.

In the meantime, investors are having difficulty understanding whether today’s economic growth is a mirage, an encouragement or a house of cards about ready to fall and take them down with it.

The May-Investments LEI peaked a year ago, when activity in the drilling patch declined, small business owners retrenched and purchasing manager new orders dropped off.

While eight of 10 component indicators were rising in March 2012, only half the indicators were on the rise

two months later. By October 2012, only three indicators were moving higher. 

Despite our positive economic forecast for the year, the May-Investments LEI began trending down as 2013 began. In April, however, optimism among small business owners improved slightly and the decline in drilling activity was less significant than it had been a few months back.

Overall, the upturn represents less of an improvement than it does a less forceful downtrend at the beginning of the year.  

Retail sales remain an area of strength, but they’re not as strong as they were a year ago, or in January, so we continue to watch that indicator closely for signs the recovery will continue. 

Global shipping rates remain weak, and bank lending isn’t growing as fast as it did in 2012.

A slowdown in the growth rate of the money supply is also surprising — and worrisome — given the moves the Federal Reserve continues to make to try to flood the economy with money.

We’re thrilled the LEI moved up. But it’s too early to conclude there’s much strength there.

As things stand now, we stand by our forecast for continued economic growth during 2013.

We projected growth in gross domestic product, the broad measure of goods and services produced in the country, at an annual rate of 2.5 percent.

As of the most recent report at the end of May, GDP was growing at a rate of

2.4 percent, pretty much as we expected.

Hopefully, this recent upturn in our LEI suggests this slow and steady growth rate will continue throughout the rest of this year.

Doug May, a Chartered Financial Analyst, serves as director of the Mountain West Region for WealthSource Partners, an investment adviser registered with the U.S. Securities & Exchange Commission. Registration with the SEC doesn’t imply a certain level of skill or training. The opinions and views expressed are those of Doug May and don’t necessarily reflect the opinions and views of WealthSource Partners. All investing involves risk of loss. WealthSource Partners operates an office in Grand Junction at 744 Horizon Court, Suite 350. For more information, call 263-5126 or visit www.wealthsource.com.
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