Leading index forecasts growth, but also risk

A monthly index forecasting economic conditions in the United States continues to rise, but at a slower pace that  could signal less growth in the months ahead.

The Conference Board reported that its Leading  Economic Indicator edged up two-tenths of a percent to 121.1. Separate indexes tracking current and past economic performance also increased. Considered together, the indexes suggest economic expansion should continue in the near term.

With gains in each of the last five months, the Leading Economic Index has advanced 2.3 percent over the past six months with widespread strength in its components. But that’s only about half as fast as the 4.1 percent gain over the previous six-month span.

“The U.S. Leading Economic Index increased again in January, but it’s pace of growth has moderated in recent months,” said Ataman Ozyildirim, an economist for the Conference Board,  a business research and membership association.

“While the LEI suggests a positive short-term outlook for 2015, the lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the U.S. economy,” Ozyildirim said.

Five of 10 components of the Leading Economic Index advanced in January, including consumer expectations for business conditions, interest rate spread, a leading credit index and new orders for capital and consumer goods. Building permits, a new orders index and stock prices all declined. An increase in average weekly claims for unemployment insurance also pulled down the index. Average weekly manufacturing hours held steady.

The Coincident Economic Index, a measure of current conditions, rose two-tenths of a percent to 111.6. The index has increased 1.5 percent over the past six months.

For January, all four components of the index advanced: industrial production, nonfarm payrolls, personal income and sales.

The Lagging Economic Index, a measure of past performance, increased three-tenths of a percent to 115.3. The index has gained nine-tenths of a percent over the past three months.

For January, four of seven components of the index advanced, including commercial and industrial financing, consumer credit and labor costs. A decrease in the average duration of unemployment also bolstered the index. The cost of services declined, while inventories and the average prime rate charged by banks remained unchanged.