Leading index retreats, but still forecasts growth

An index forecasting economic performance in the United States has retreated, but continues to signal moderate growth in the months ahead.

The Conference Board reported that its Leading Economic Index (LEI) slipped two-tenths of a percent to 123.7 in December. Separate measures of current and past economic performance both increased.

“The index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015. While the LEI’s growth rate has been on the decline, its too early to interpret this as a substantial rise in the risk of recession,” said Ataman Ozyildirm, an economist with the Conference Board, a business research and membership association.

The Leading Economic Index rose seven-tenths of a percent during the second half of 2015, a fraction of the 2 percent growth for the first half of last year. Strengths among leading indicators have become less widespread and now balance with weaknesses.

Gross domestic product, the broad measure of goods and services produced in the country, grew at an annual rate of 2 percent during the third quarter of 2015, down from 3.9 percent in the second quarter.

For December, just four of 10 components of the Leading Economic Index advanced: interest rate spread, a leading credit index and new orders for both capital and consumer goods. Five components declined, including building permits, consumer expectations for business conditions, a new orders index and stock prices. An increase in average weekly initial claims for unemployment benefits also pulled down the index. Average weekly manufacturing hours held steady.

The Coincident Economic Index, a measure of current performance, edged up a tenth of a percent to 113. The index has increased 1.1 percent over the past six months.

For December, three of four components of the index advanced: nonfarm payrolls, personal income and sales. Industrial production declined.

The Lagging Economic Index, a measure of past performance, rose two-tenths of a percent to 119.9. The index has increased seven-tenths of a percent over the past three months.

For December, four of seven components of the index advanced, including the average prime rate charged by banks, consumer credit, and inventories. A decrease in the average duration of unemployment also bolstered the index. Three components retreated: commercial and industrial financing, the cost of services and labor costs.