A Pivotal Point For Leading Indicators

Economic Blog
December 20, 2019

U.S. leading indicators for November came in flat compared to October, ending a three-month streak of declining values. While investors cheered the end to the skid, the reading was below consensus expectations for a 0.1% increase.

The Conference Board’s Leading Economic Index (LEI), which we include as one of the “Five Forecasters” in our Recession Watch Dashboard, has yet to turn negative this cycle on a year-over-year basis. Investors pay special attention to the year-over-year change in the series, as a dip into negative territory has preceded all nine recessions since 1955.

As shown in the LPL Chart of the Day,  the LEI climbed 0.1% year over year, the slowest pace of growth in this economic expansion.

LEI-Blog-Chart-12_19_19

While slowing growth has caught our attention, we believe leading indicators could reach a bottom in the near future. Only two of the LEI’s ten components declined month over month, and the underlying components confirmed what we already knew: The manufacturing sector has weakened from trade tensions. Indicators linked to sentiment and interest rates, however, are starting to turn up, and the announcement of a “phase one” U.S.-China trade deal could bring some relief to manufacturing sector.

“Evidence of a ‘soft landing’ in the domestic economy is starting to appear in indicators we track,” said LPL Financial Chief Investment Strategist John Lynch. “While slowing year-over-year LEI growth is concerning, thawing trade tensions should be positive for leading indicators going forward. We expect the annual change in the LEI to find a bottom right around current levels.”

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This Research material was prepared by LPL Financial, LLC.

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