Conference Board index suggests US on moderate growth path

Summary: US leading index up 0.2% in September, above expectations; suggests economy remains on more moderate growth path compared to first half; Conference Board 2021 forecast trimmed from 6.0% to 5.7%.

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 0.2% in September. The result was in contrast to the 0.5% fall which had been generally expected but noticeably lower than August’s revised figure of 0.8%. On an annual basis, the LEI growth rate slowed from 9.9% to 9.4%.

“The US LEI rose again in September, though at a slower rate, suggesting the economy remains on a more moderate growth trajectory compared to the first half of the year,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board.

US Treasury bond yields rose on the day, especially at the short end. By the close of business, the 2-year Treasury yield had increased by 8bps to 0.46%, the 10-year yield had gained 5bps to 1.70% while the 30-year yield finished 2bps higher at 2.15%.

In terms of US Fed policy, expectations of any change in the federal funds range over the next 12 months firmed noticeably. October 2022 futures contracts implied an effective federal funds rate of 0.41%, 33bps above the spot rate.

Regression analysis suggests the latest reading implies a 5.0% year-on-year growth rate in December, down from November’s comparable figure of 5.2% after revisions. The Conference Board currently forecasts an expansion of nearly 5.7% for calendar 2021, a slightly slower rate than their forecast of 6.0% one month ago.

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