Leading economic indicators are confirming what high-frequency data has been telling us for weeks: The rate of the domestic economic recovery, while still positive, is slowing.
On November 19, the Conference Board released its October report detailing the latest reading for its Leading Economic Index (LEI), a composite of data series that tend to lead changes in economic activity. For the second straight month, the index’s value grew 0.7% month over month, suggesting still-positive economic growth, but at a significantly lower level than earlier in the recovery. For context, the monthly growth rate peaked in June at 3.1%, and was growing at a rate of 1.6% just two months ago, as seen in the LPL Chart of the Day.
Seven of the LEI’s ten component series increased in October, while two remained constant and one declined. The Institute for Supply Management (ISM) New Orders Index, average weekly initial claims for unemployment insurance (inverted), and the Leading Credit Index (inverted) led the way among positive contributors. Building permits and average consumer expectations for business conditions held steady, but manufacturers’ new orders for nondefense capital goods, excluding aircraft—one proxy for business investment—declined in October.
“It’s no surprise that we are seeing a soft patch in some of the real-time economic data,” said LPL Financial Chief Market Strategist Ryan Detrick. “The prospect of a widely distributed vaccine by mid-2021 is helping to lift optimism for the future, but in the meantime, the economy is having to contend with new highs in daily case counts and the specter of renewed targeted lockdowns.”
We are certainly heartened by the recent news regarding efficacy rates in major vaccine trials. The flipside to this, however, is that seeing the light at the end of the tunnel may reduce Congress’s appetite to enact a major stimulus bill to see us through to the other side. We continue to monitor high-frequency economic data, as well as positive case counts, to gauge the economy’s resilience and determine whether any worsening could force Congress’s hand on a stimulus bill.
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