Leading index rises, but also raises concerns

A monthly measure of future economic activity in the United States continues to increase, but slowing growth in the index raises concerns about recovery.

The Conference Board reported its Leading Economic Index (LEI) rose three-tenths of a percent to 116.2.

While the index has advanced four consecutive months, growth over the past six months was slower at 2.4 percent than the previous six months.

Moreover, strengths among leading indicators have balanced in recent months with weaknesses.

“The August increase in the U.S. LEI was driven by components measuring financial and monetary conditions, which offset substantially weaker components measuring expectations,” said Ataman Ozyildirim, an economist at the Conference Board. “The growth trend in the LEI has moderated and positive and negative contributors to the index point to rising risks and volatility and increasing concerns about the health of the expansion.”

Ken Goldstein, another economist at the Conference Board, said there’s growing risk weakening confidence could push down demand and business activity and return the economy to recession. “While the chance of that happening remains below 50-50, the odds have certainly increased in recent months.”

For August, six of the 10 components of the LEI retreated, including average weekly manufacturing hours, consumer expectations, new orders for both manufactured consumer and capital goods and stock prices.

Moreover, initial claims for unemployment benefits rose.

Four components advanced: building permits, the interest rate spread on 10-year treasury bonds, the money supply and supplier deliveries.

The Coincidence Economic Index (CEI), a measure of current economic performance, edged up a tenth of a percent in August to 103.3. The CEI has increased eight-tenths of a percent over the past six months.

For August, three of four components of the CEI advanced: personal income, productivity and sales. Nonfarm payrolls held steady.

The Lagging Economic Index (LAG), a measure of past performance, rose three-tenths of a percent to 110.3 in August.

Three of seven components of the LAG advanced. Business loans and consumer credit were up, while the average duration of unemployment dropped. The negative contributors included rising labor costs and the prices of services. Inventories and the average prime interest rate held steady.