Need To Know News

The July US Leading Economic Index fell 0.7%, led lower by declines in the stock market, higher initial jobless claims and declines in building permits. These negative factors offset improvements in the spread between the 10yr Treasury and the Fed funds rate, as well as improved consumer confidence over the period.

The July Coincident Index improved marginally thanks to positive contributions from industrial production, though employment continued to decline. The Coincident Index is down 0.4% over the past 6 months.

The July Lagging Index increased 0.4%, led higher by changes in CPI for services and improvement in commercial and industrial loans.

The Leading index is down 0.9% over the past 6 months and has reverted back to its downward trend after showing signs of stabilization in March and April.

The July US Leading Economic Index(LEI) is expected to fall 0.2% following a 0.1% decrease in June and a 0.2% decrease in May. The July LEI was down 2.1% year-over-year and was down 1.7% on a 6month annualized basis. The June Coincident Index was up 0.1% in June following a 0.1% decrease in May and the June Lagging Index was down 0.3% in June following a 0.2% drop in May.

Positive contributions to the July LEI include:

• Improvement in the 10yr Treasury relative to Fed funds. The 10yr yield fell to 4.095 early in July before improving to 4.33% later in the month.
• Improved UofM Confidence data. The UofM Confidence survey bounced off an all time low in June, and though still generally negative will help boost July LEI.

Negative contributions to the July LEI include:

• Declines in equity markets. The S&P cash index was dropped nearly 5% in July.
• Higher initial jobless claims. Initial jobless claims grew to 449k during the last week of July from 348k during the first week of the month.
• Fewer building permits. July building permits fell to 937k from an upwardly revised 1.138mln in June.

Other Index components expected to have limited impact on July LEI include:

• ISM supplier deliveries which were unchanged at 55.1 in July
• Roughly unchanged factory workweek
• Nearly unchanged Consumer Goods Orders
• Nearly unchanged M2 money supply
• Slight improvement in real non-durable consumer goods orders

The July US Leading Economic Index(LEI) is expected to fall 0.2% following a 0.1% decrease in June and a 0.2% decrease in May. The July LEI was down 2.1% year-over-year and was down 1.7% on a 6month annualized basis. The June Coincident Index was up 0.1% in June following a 0.1% decrease in May and the June Lagging Index was down 0.3% in June following a 0.2% drop in May.

Positive contributions to the July LEI include:

• Improvement in the 10yr Treasury relative to Fed funds. The 10yr yield fell to 4.095 early in July before improving to 4.33% later in the month.
• Improved UofM Confidence data. The UofM Confidence survey bounced off an all time low in June, and though still generally negative will help boost July LEI.

Negative contributions to the July LEI include:

• Declines in equity markets. The S&P cash index was dropped nearly 5% in July.
• Higher initial jobless claims. Initial jobless claims grew to 449k during the last week of July from 348k during the first week of the month.
• Fewer building permits. July building permits fell to 937k from an upwardly revised 1.138mln in June.

Other Index components expected to have limited impact on July LEI include:

• ISM supplier deliveries which were unchanged at 55.1 in July
• Roughly unchanged factory workweek
• Nearly unchanged Consumer Goods Orders
• Nearly unchanged M2 money supply
• Slight improvement in real non-durable consumer goods orders

The Conference Board said today that its Composite Index of Leading Economic Indicators fell 0.1% in June, matching expectations and following a downwardly revised 0.2% drop in May (previously reported as a 0.1% rise).

June’s decline was driven by falling stock prices, weekly jobless claims, and real money supply, and weakness among the leading indicators continues to be widespread, the Board said.

May’s number was revised lower due to revisions in the manufacturing sector’s average work week and new orders for consumer goods, the Board said.

Meanwhile, the June Coincident Index rose 0.1% after falling 0.1% in May, while the Lagging Index dropped 0.3% following a 0.2% drop prior.

“The domestic economy is showing no sign of strength,” said Conference Board labor economist Ken Goldstein. “The Leading Index has started to signal slow growth since last spring, and the Coincident Index has been flat to declining since last fall.

“The deep financial crisis, a prolonged, intense slump in housing, high gasoline and food prices, and weak consumer confidence and a weak dollar are all combining to produce unrelenting downward pressure on economic activity,” Goldstein said. “This is also why it wouldn’t take much to push the economy so that it’s even weaker in [H2].”

The June US Leading Economic Index is expected to fall 0.1% in June after gaining 0.1% in May. The Leading Index in May was down 1.8% on a y-o-y basis and down 1.4% on an annualized basis. The Coincident Index grew 0.1% in May after falling 0.1% in April and the Lagging Index gained 0.2% in May following a flat reading in April.

A roughly balanced mix of positive and negative factors are expected to produce a muted index reading for a 4th consecutive month but is still expected to reveal its first decline since February. However, the eye-popping and somewhat conspicuous increase in June permits poses upside risk to the June index.

Improvements are expected in the following index components:

* Building permits will provide the most support for the index after gaining 11.6% in June;
* The increase in the spread between the 10yr and the 2% Fed funds rate over the period;
* The increase in the ISM June Deliveries Index from 53.7 to 55.1.

Declines are expected in the following components:

* Steep declines in the real M2 money supply (physical currency, bank deposits under 100k);
* Declines in the S&P 500 index;
* Increase in jobless claims;
* Decrease in average weekly manufacturing hours;
* Further declines in UofM Consumer Confidence;
* Marginal declines in consumer goods orders and non-durable consumer goods orders

The June US Leading Economic Index is expected to fall 0.1% in June after gaining 0.1% in May. The Leading Index in May was down 1.8% on a y-o-y basis and down 1.4% on an annualized basis. The Coincident Index grew 0.1% in May after falling 0.1% in April and the Lagging Index gained 0.2% in May following a flat reading in April.

A roughly balanced mix of positive and negative factors are expected to produce a muted index reading for a 4th consecutive month but is still expected to reveal its first decline since February. However, the eye-popping and somewhat conspicuous increase in June permits poses upside risk to the June index.

Improvements are expected in the following index components:

* Building permits will provide the most support for the index after gaining 11.6% in June;
* The increase in the spread between the 10yr and the 2% Fed funds rate over the period;
* The increase in the ISM June Deliveries Index from 53.7 to 55.1.

Declines are expected in the following components:

* Steep declines in the real M2 money supply (physical currency, bank deposits under 100k);
* Declines in the S&P 500 index;
* Increase in jobless claims;
* Decrease in average weekly manufacturing hours;
* Further declines in UofM Consumer Confidence;
* Marginal declines in consumer goods orders and non-durable consumer goods orders

The Conference Board said today that the composite index of leading indicators rose 0.1% in May after an unrevised 0.1% increase in April and no change in March.

The coincident index rose 0.1% after a 0.1% decline in April. The lagging index rose 0.2% following no change the prior month.

The board said the US economy is very weak heading into the summer, with gas and utility bills possibly heading even higher,” said labor economist Ken Goldstein. “But latest data suggest the economy has not fallen into a contraction and may not undergo one in the 2nd half of this year. In fact, the economy might even begin to turn a corner early next year.”

The May US Leading Economic Index is expected to be unchanged after a 0.1% increase in April. The 6-month annualized average for the LEI was down 2.3% in April, but better than the -3.4% reading in March and below the -4.5% recession threshold. The LEI was down 1.8% y-o-y in April.

The Coincident Index was unchanged in April and the Lagging Index gained 0.1%.

Potential Additions to the May LEI include:
* Widening of the 10yr-Fed Funds spread
* Gains in the S&P 500

Likely subtractions to the index include:
* Decreased M2 money supply
* Worst Michigan Consumer Confidence number since May-80
* Slightly higher Initial Jobless Claims
* Slowdown in Building Permits
* Lower ISM supplier deliveries

Since the formula to calculate LEI changes so frequently, it is better at at confirming past downturns than predicting future ones.