Summary: US leading index up 0.9% in October, slightly above expectations; suggests expansion to continue, may accelerate; Higher prices, bottlenecks still “pose challenges to growth”; Conference Board 2021 forecast trimmed from 5.7% to 5.0%.
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 recovered rapidly.
The latest reading of the LEI indicates it rose by 0.9% in October. The result was slightly above the 0.8% increase which had been generally expected and noticeably higher than September’s revised figure of 0.1%. On an annual basis, the LEI growth rate remained unchanged at 9.2% after revisions.
“The US LEI rose sharply in October suggesting the current economic expansion will continue into 2022 and may even gain some momentum in the final months of this year,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. He noted “widespread” gains among the Index’s components.
US Treasury bond yields fell on the day. By the close of business, 2-year and 10-year Treasury yields had each slipped 1bp to 0.49% and 1.59% respectively while the 30-year yield finished 3bps lower at 1.97%.
In terms of US Fed policy, expectations of any change in the federal funds range over the next 12 months eased slightly. November 2022 futures contracts implied an effective federal funds rate of 0.535%, 47bps above the spot rate.
Higher prices and bottlenecks have featured prominently in US business surveys in recent months. Ozyildirim said they “pose challenges to growth and are not expected to dissipate until well into 2022.”
Regression analysis suggests the latest reading implies a 4.8% year-on-year growth rate in January, unchanged from December’s comparable figure after revisions. The Conference Board currently forecasts an expansion of around 1.2% in the December quarter, or 5.0% annualised. This implies a 5.0% year-on-year growth rate for calendar 2021, down from their forecast of 5.7% one month ago.
