* The leading index decreased in April, and the small March increase was revised up as actual data for manufacturing new orders for nondefense capital goods became available. The leading index declined or remained the same in three of the last six months. As a result, from October to April, the leading index fell 0.2 percent (a -0.4 percent annual rate). In April, housing permits made the largest negative contribution, but the weaknesses among the leading indicators have been somewhat more widespread than the strengths over the past few months.
* The coincident index increased again in April, the third consecutive gain. From October to April, the coincident index rose by 0.7 percent (a 1.3 percent annual rate). In April, all four coincident indicators contributed to the gain and the largest contribution came from industrial production followed by personal income. The coincident index grew at an average annual rate of about 2.5 percent in 2006, but its growth has moderated to about a 1.5 to 2.0 percent average annual rate in the first four months of the year.
* The leading index is 0.7 percent below its April 2006 level. In the second half of 2006, the leading index was essentially flat from July through November, followed by a small pick up in December, and it is now slightly below its October level. At the same time, real GDP grew only at a 1.3 percent annual rate (advance estimates) in the first quarter of 2007, following a 2.5 percent rate in the fourth quarter of 2006. The recent behavior of the composite indexes suggests that economic growth is likely to continue to be slow in the near term.
....
The leading index now stands at 137.3 (1996=100). Based on revised data, this index increased 0.6 percent in March and decreased 0.6 percent in February. During the six-month span through April, the leading index decreased 0.2 percent, with three out of ten components advancing (diffusion index, six-month span equals thirty percent.)
I made it a habit of not looking at leading/sentiment indicators because I didn't think they were very good at predicting. However, some research from Merrill Lynch (I'm a client) proved me wrong. The LEI index is actually pretty good at forecasting the next 3-6 months.
Here's a chart from Martin Capital that shows the Leading, Coincident and Lagging indicators from the Conference Board:
4 comments:
Doesn't the LEI result call into question the rosy industrial output number which were issued yesterday? How does one integrate the great numbers the industrial output figures projected with the weakening retail figures, the terrible real estate market the increases in energy costs across the board and the merely OK increases in US exports?
Somehow the pieces of the puzzle aren't fitting together. All of that stuff we're making must go someplace, if they are to be believed. On the other hand, the deflators being used could be totally bogus too.
Enjoy your vacation. Come back with a refreshed perspective on the world.
Amen to that, viziervic. One of the worst parts of this era is that one is not inspired to trust the statistics.
Charles of Mercury Rising
http://www.phoenixwoman.wordpress.com
Actually, viziervic the leading indicators do not contradict the output numbers. The leading indicators, taken together (not taken individually) are selected because they are correlated with economic activity in the near term future.
If you look at the LEI three to six months before April, they were not so bad as they are currently, so there is no contradiction between the current output numbers rising, and the present Index of LEI showing a mild recessionary signal.
If the recession hits ... if there is no growth driver that comes along to bail us out ... that industrial output will decline (and steeply).
Brucemcf, tell me something I don't already know. What I was addressing was those rather weak LEI figures shown on the charts compared against the robust numbers being reported this past month. The LEI numbers at the end of 2006 weren't bad, but they certainly weren't calling for type of industrial output being claimed in the most recent reports.
Besides, as I said, just where was all of that theoretical industrial output going? Housing activity is declining, which is reducing the need for a lot of industrial output. The retail sales figures were weak, which means that the sales weren't going through that channel. Export sales haven't boomed, which means that significant flows through that channel haven't happened. So, if wholesale and retail channels have seen a dropoff and the export channel is just chugging along, just where has the industrial output gone? I can think of two potential areas and neither is benign. First, inventories might be spiking. Most companies aren't going to allow that to continue for very long in the current environment. Second, the inflation deflator is seriously underestimated, making the picture rosier than it really is in the short term. Got any ideas?
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