Leading Index at mid-year: Supply constraints holding back growth
|Summary
The Leading Economic Index (LEI) came in at just 0.7% in June, a notch short of expectations. The softness is due, in part, to a sharp drop in building permits in June and the third straight monthly drag from the average workweek. Both of these components reflect supply chain problems that are holding back what would otherwise be robust growth.
Leading Index Signals a Moderation in the Pace of Growth
The Leading Index increased 0.7% in June. While the index continues to indicate expansion, the pace of its growth has moderated, due to slower growth from the index's positive contributors and further widening between solid demand and struggling supply.
Initial jobless claims were once again the largest contributor on the month, adding 0.25 percentage points, as initial claims for unemployment continued to decline. With the labor market recovery slated to continue over the summer, we expect that over the course of the second half of the year, jobless claims will continue to boost the headline. That said, we may not see a boost in July, because the number of weekly initial claims averaged 391K so far in the month, and in the most recent print released this morning for the week of July 16, claims rose to their highest since May.
ISM new orders added 0.21 in June. While the new orders sub-component actually fell a point last month, the level, which factors into the calculation for LEI, remains elevated at 66. Similarly, the spread between the 10-year treasury yield and the fed funds rate narrowed in June but still contributed positively on the month, as the level remained positive and consistent with continued expansion.
Source: The Conference Board and Wells Fargo Securities
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.