US leading index trend implies “robust growth” until end 2021

Summary: US leading index up 0.9% in August, above expectations; trend “consistent with robust economic growth in the reminder of the year” despite Delta, rising inflation fears; Conference Board 2021 forecast basically unchanged at nearly 6.0%.

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 had recovered rapidly.

The latest reading of the LEI indicates it rose by 0.9% in August. The result was above the 0.5% increase which had been generally expected and slightly higher than July’s revised figure of 0.8%. On an annual basis, the LEI growth rate slowed from 10.0% after revisions to 9.0%.

“While the Delta variant, alongside rising inflation fears, could create headwinds for labour markets and the consumer spending outlook in the near term, the trend in the LEI is consistent with robust economic growth in the reminder of the year,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. Changes over time can be large but once they are standardised, a clearer relationship with GDP emerges. The latest reading implies a 4.9% year-on-year growth rate in November, down from October’s comparable figure of 5.3% after revisions. The Conference Board currently forecasts an expansion of nearly 6.0% across all of calendar 2021, basically unchanged from their forecast of 6.0% one month ago.

Zero in the chart above represents the average year-on-year US GDP growth rate from September 2002, or about 1.8% year on year.

Long-term US Treasury bond yields jumped on the day. At the close of business, the 10-year Treasury yield had increased by 12bps to 1.43% and the 30-year yield had increased by 13bps to 1.94%. The 2-year yield finished 2bps higher at 0.26%.

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