Leading index reflects risk of slowing growth

An index forecasting economic conditions in the United States has slipped, raising questions about whether moderate growth will continue.

The Conference Board reported that its Leading Economic Index fell two-tenths of a percent to 123.7 in May. A separate measure of current conditions held steady, while a measure of past performance increased.

“The U.S. LEI declined in May primarily due to a sharp increase in initial claims for unemployment insurance,” said Ataman Ozyildirim, an economist with the Conference Board, a business research and membership association.

“The growth rate of the LEI has moderated over the past year,” Ozyildirim added. “While the LEI suggests the economy will continue growing at a moderate pace in the near term, volatility in financial markets and a moderate outlook in labor markets could pose downside risks to growth.”

The Leading Economic Index has remained flat over the past six months after increasing 1.2 percent over the preceding six-month span. Weakness among leading indicators has become more widespread.

Gross domestic product, the broad measure of goods and services produced in the country, grew at an annual rate of eight-tenths of a percent during the first quarter of 2016 after posting a 1.4 percent gain in the fourth quarter of 2015.

For May, six of 10 components of the Leading Economic Index advanced: building permits, interest rate spread, a leading credit index, new orders for both consumer and capital goods and a new orders index. An increase in average weekly initial claims for unemployment insurance pulled down the index, as did decreases in consumer expectations for business and stock prices. Average weekly manufacturing hours remained unchanged.

The Coincident Economic Index, a measure of current conditions, held steady at 113.5 in May. The index has increased seven-tenths of a percent over the past six months.

For May three of four components of the index advanced: personal income, payrolls and sales. Industrial production retreated.

The Lagging Economic Index, a measure of past performance, increased three-tenths of a percent to 121.9 in May. The index has climbed 1.1 percent over the past three months.

For May, five of seven components of the index advanced: commercial and industrial financing, consumer credit, inventories and the cost of services. A decrease in the average duration of unemployment also buoyed the index. Labor costs retreated, while the average prime rate charged by banks held steady.