Summary: Conference Board leading index down 0.5% in September, fall larger than expected; CB: weak factory new orders continuing as major drag on index; US Treasury yields jump; rate-cut expectations soften; CB: expects moderate growth into early 2025.
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. Post-2022 readings implied US GDP growth rates would turn negative but that has not been the case so far.
The latest reading of the LEI indicates it decreased by 0.5% in September. The fall was a larger one than the 0.3% decline which had been generally expected as well as August’s downwardly-revised 0.3% decrease.
“Weakness in factory new orders continued to be a major drag on the US LEI in September as the global manufacturing slump persists,” said Justyna Zabinska-La Monica of The Conference Board.
US Treasury bond yields jumped on the day. By the close of business, the 2-year Treasury yield had gained 8bps to 4.03%, the 10-year yield had added 12bps to 4.20% while the 30-year yield finished 10bps higher at 4.50%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened, although another five 25bp cuts are still factored in. At the close of business, contracts implied the effective federal funds rate would average 4.66% in November, 4.535% in December and 4.255% in February. September 2025 contracts implied 3.58%, 125bps less than the current rate.
“Additionally, the yield curve remained inverted, building permits declined and consumers’ outlook for future business conditions was tepid,” Zabinska-La Monica added. “Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board expectation for moderate growth at the close of 2024 and into early 2025.“
The Conference Board stated in August it expected annualised growth rates of 0.6% and 1.0% in the respective third and fourth quarters of 2024. Regression analysis suggests the latest reading implies a zero year-on-year growth rate in December, up from the 0.1% year-to-November contraction rate after revisions.
