Summary: Conference Board leading index up 0.1% in February, better than expected; Index still suggests some headwinds to growth; short-term US Treasury yields rise, long-term yields slip; rate-cut expectations soften; regression analysis implies 0.8% contraction in year to May.
The Conference Board Leading Economic Index (LEI) is a composite index composed of ten sub-indices which are thought to be sensitive to changes in the US economy. The Conference Board describes it as an index which attempts to signal growth peaks and troughs; turning points in the index have historically occurred prior to changes in aggregate economic activity. Readings from March and April of 2020 signalled “a deep US recession” while subsequent readings indicated the US economy would recover rapidly. More recent readings have implied US GDP growth rates would turn negative in the first half of 2024.
The latest reading of the LEI indicates it increased by 0.1% in February. The rise contrasted with the 0.1% decline which had been generally expected as well as January’s figure of -0.4%.
“Despite February’s increase, the Index still suggests some headwinds to growth going forward,” said Justyna Zabinska-La Monica of The Conference Board. “The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”
Short-term US Treasury bond yields rose moderately while longer-term yields slipped a little. By the close of business, the 2-year Treasury yield had gained 4bps to 4.64% while 10-year and 30-year yields both finished 1bp lower at 4.27% and 4.44% respectively.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened, although several cuts are still factored in. At the close of business, contracts implied the effective federal funds rate would average 5.295% in May, 3bps below the current spot rate, 5.195% in June and 5.13% in July. March 2025 contracts implied 4.345%, 98bps less than the current rate.
The Conference Board had previously forecast negative GDP growth in the June and September quarters of 2024. Regression analysis suggests the latest reading implies a -0.8% year-on-year growth rate in May, up from -1.0% for the year to April growth rate.
