Leading index rebounds, but still reflects weak outlook

Ataman Ozyildirim

A monthly index forecasting economic conditions in the United States continues to rebound as more businesses reopen, but still signals a weak outlook in the midst of the coronavirus pandemic.

The Conference Board reported its Leading Economic Index (LEI) advanced 2 percent to 102 in June. The index has climbed 5.2 percent over the past two months after falling 6.3 percent in April.

“The June increase in the LEI reflects improvements brought about by the incremental reopening of the economy with labor market conditions and stock prices in particular contributing positively,” said Ataman Ozyildirim, senior director of economic research at the Conference Board.

Overall, though, the index still points to a weak economic outlook, Ozyildirim said. “Together with a resurgence of new COVID-19 cases across much of the nation, the LEI suggests that the U.S. Economy will remain in recession territory in the near term.”

The LEI fell 8.4 percent during the first half of 2020 after slipping two-tenths of a percent during the second half of 2019. By comparison, gross domestic product retreated at an annual rate of 5 percent in the first quarter of 2020.

For June, seven of 10 indicators of the LEI advanced, including average weekly manufacturing hours, building permits, interest rate spread, new orders for capital goods, a new orders index and stock prices. A decline in average weekly initial claims for unemployment insurance also bolstered the index. Consumer expectations for business conditions, a leading credit index and new orders for consumer goods retreated.

The Coincident Economic Index, a measure of current conditions, rose 2.5 percent to 96.7. The index has increased 9.8 percent over the past six months. For June, industrial production, nonfarm payrolls and personal income increased. Sales decreased.

The Lagging Economic Index, a measure of past performance, fell 2.5 percent to 110.8. The index has dropped six-tenths of a percent over the past three months. For June, the cost of services and inventories increased. Commercial and industrial financing, consumer debt and labor costs decreased. An increase in the average duration of unemployment also pulled down the index. The average prime rate charged by banks held steady.