Index of Leading Economic Indicators – Convincing News about Weak Economy
The Index of Leading Economic Indicators (LEI) declined 0.5% in October after downward revisions to readings of September and August. The year-to-year change in the LEI (monthly and quarterly) has turned negative once again after a brief year-to-year change that was positive in the third quarter.
The Coincident Index stalled in October; historically, the Coincident Index has stalled or turned negative a few months prior to a recession. The ratio of Coincident to Lagging Index declined to the lowest level in the current cycle, excluding the February reading that is close to the October ratio. Charts 1 and 2 send a convincing message of the upside risks of weak economic conditions in the months ahead.
Of the ten indicators in the composite, orders of consumer durable, real money supply and stock prices advanced in October while the remaining seven declined. Housing permits, initial jobless claims, and consumer expectations posted large drops in October. The November LEI is predicted to post a decline, which should enhance the probability of a continued weakness in the pace of economic growth.
Soft Labor Market Conditions Persist
Initial jobless claims fell 11,000 to 330,000 during the week ended November 17. The four-week moving average is holding around 330,000 for three consecutive weeks after a 310,500 reading in the first week of October. Continuing claims, which lag initial claims by one week, rose 7,000 to 2.566 million and the insured unemployment rate held steady at 1.9%. The four-week moving average of continuing claims (2.570 million) is the highest since early-2006, excluding a similar reading seen briefly in September 2007. As shown in chart 3, the upward trend of jobless claims data is giving a persuasive signal of soft labor market conditions.
