Leading index signals slowing growth

Ataman Ozyildirim
Ataman Ozyildirim

A monthly index forecasting economic conditions in the United States has edged down, signaling what could be slowing growth in the months ahead.

The Conference Board reported its Leading Economic Index (LEI) edged down a tenth of a point in January to 111.3. Separate measures of current and past conditions increased.

“In January, the strengths in the financial components were offset by the weaknesses in the labor market components,” said Ataman Ozyildirim, director of economic research at the Conference Board. “The U.S. LEI has now been flat essentially since October 2018. The Conference Board forecasts that U.S. (gross domestic product) growth will likely decelerate to about 2 percent by the end of 2019.”

GDP, the broad measure of the total value of goods and services produced in the country, grew at annual rate of 3.4 percent in the third quarter of 2018 following a 4.2 percent gain during the second quarter.

The LEI has increased eight-tenths of a percent over the past six months, slower than the 2.7 percent gain over the six months before that. Moreover, strengths among the indicators have become somewhat less widespread.

For January, seven of 10 indicators of the LEI advanced, including building permits, interest rate spread, leading credit and new orders indexes, new orders for both consumer and capital goods and stock prices. Average weekly manufacturing hours and consumer expectations retreated. An increase in average weekly initial claims for unemployment benefits also pulled down the index.

Because of the partial shutdown of the federal government, information for building permits and new orders for consumer and capital goods weren’t available. Statistical imputations were used instead.

The Coincident Economic Index, a measure of current conditions, edged up a tenth of a point to 105.5. The index has increased 1.2 percent over the past six months.

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

The Lagging Economic Index rose a half of a percent to 106.7. The index has gained 1.3 percent over the past three months.

For January, five of seven components of the index advanced, including the average prime interest rate charged by banks, consumer credit, the cost of labor and industrial financing. A decrease in the average duration of unemployment also bolstered the index. Inventories and the cost of services declined.