The Conference Board reported a contraction in the index of leading economic indicators in October, confirming the argument for a weakening US economy in the coming months. The US leading indicators index fell 0.8% for the month, after a 0.3% gain in September. Economists were expecting reading of -0.6%. The index is down 2.4% (-4.7% annual pace) in the last six months, worse than the -1.2% witnessed in the 6 months prior.
The economy is contracting, and the pace of contraction may intensify over the next few months. The economy was very weak.- Ken Goldstein, an economist for the Conference Board.
The index is used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. The ten components are:
1. the average weekly hours worked by manufacturing workers
2. the average number of initial applications for unemployment insurance
3. the amount of manufacturers’ new orders for consumer goods and materials
4. the speed of delivery of new merchandise to vendors from suppliers
5. the amount of new orders for capital goods unrelated to defense
6. the amount of new building permits for residential buildings
7. the S&P 500 stock index
8. the inflation-adjusted monetary supply (M2)
9. the spread between long and short interest rates
10. consumer sentiment
Six of the components were negative for the month.
The negative contributors — beginning with the largest negative contributor — were stock prices, building permits, index of consumer expectations, index of supplier deliveries (vendor performance), average weekly initial claims for unemployment insurance (inverted), and manufacturers’ new orders for nondefense capital goods. Average weekly manufacturing hours held steady in October.
The positive contributors were real money supply, interest rate spread, and manufacturers’ new orders for consumer goods and materials.
The biggest positive contributor was real money supply. This is logical and expected as the Fed has vigorously and continuously pumped large amounts of money into our financial markets, in an attempt to quell the credit crunch and restart our economy.
The Conference Board’s coincident index increased 0.2% in October, while the lagging index gained 0.1%.