Index of Leading Economic Indicators Underscores Continuing Recovery
Economics / Economic Recovery Dec 18, 2010 - 05:37 AM GMTBy: Asha_Bangalore
The Conference Board's Index of Leading Economic Indicators (LEI) posted a solid 1.1% gain in November after a revised 0.4% increase in October. The LEI has risen at an annual rate of 8.7% in the three months ended November compared with a 0.4% gain during the previous three months (ending August). The accelerated increase of the LEI implies continued growth of the economy and at a stronger pace compared with the trend seen in recent months. The possibility of a double-dip discussed frequently in the summer months is almost irrelevant now.
In November, the sole negative contribution was building permits. The remaining nine components of the LEI advanced, with supplier deliveries and interest rate spread as the two largest contributors. The November gain of the LEI reflects a widespread positive contribution (90%, diffusion index).
On balance, of the economic reports published in recent weeks, the main message is of improving economic conditions. The following list of positive and negative aspects of these reports suggests that doubts about the durability of the fragile recovery probably overstated.
Positive developments:
Initial jobless claims show a distinct downward trend
Payroll employment continues to advance, albeit slower
Retails sales show widespread gains in November and the underlying trend is firming up
Net credit has risen in November, the third increase in the last five months
Higher Treasury market yields are a vote of confidence about the economy
Factory production has risen at a noticeable pace. Regional factory surveys in December were upbeat
Housing starts and permits for new single-family homes rose in November.
October Pending Home Sales Index posted a strong increase
The positive trend of the Index of Leading Economic Indicators supports forecasts of continued economic growth
The University of Michigan Consumer Sentiment Index rose in the early-December survey.
Negative developments:
The 9.8% unemployment rate is a major source of concern for policymakers
Sales of homes, both existing and new, declined in October and the elevated level of inventories combined with pressures from home foreclosures is holding down home prices
Auto sales held steady in November, after increasing in three out of the four months ended October
This is the last daily commentary for 2010. We will resume publication on January 3, 2011. Season's Greetings to all our readers.
Asha Bangalore — Senior Vice President and Economisthttp://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.
Copyright © 2010 Asha Bangalore
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
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