Leading economic indicators finally received the jolt we have been expecting.
The Conference Board’s Leading Economic Index (LEI), a composite of leading data series, rose 0.8% month over month in January, ending a string of lethargic readings. As shown in the LPL Chart of the Day, the LEI rose 0.9% year over year, signaling a potential bottom in the series and pointing to economic growth.
The LEI, which we include as one of the “Five Forecasters” of our Recession Watch Dashboard, has yet to turn negative this economic cycle, even though it has come close over the past few months. That threshold is important, as the index has fallen negative year over year before all nine recessions since 1955.
In addition to the headline number, the breadth of the increase among the LEI’s 10 components impressed us. Eight subcomponents were positive contributors, a sharp increase from recent months, including a strong reversal of previous weakness in initial jobless claims that we suggested at the time was likely the result of seasonal volatility and calendar quirks.
Weakness was concentrated in the manufacturing sector, where the Institute for Supply Management (ISM) New Orders Index acted as a negative contributor, and average weekly manufacturing hours came in flat. We have maintained that manufacturing, the biggest weak spot in the domestic economy, will likely take several months to recover now that a partial trade deal has been agreed to with China.
“Stocks have been signaling that investors believe the domestic economy is bottoming,” said LPL Financial Chief Investment Strategist John Lynch. “We are pleased that the economic data is beginning to corroborate that view, though the knock-on effects of the coronavirus may delay the process.”
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