The Conference Board reported that its Leading Economic Index rose 0.4 percent in July, reversing the 0.4 percent decline of June. This was higher than anticipated, with the index lifted by increased housing permits, reduced unemployment claims, higher stock market values, and greater access to credit.
Manufacturing provided a mixed (but mostly negative) contribution to the index with falling new orders dragging down production activity. This was previously reported with the release of decreased new orders by the Institute for Supply Management’s purchasing managers’ index. Similarly, while fewer weekly initial claims for unemployment boosted the index, a flat average workweek for production workers delivered no contribution.
The Coincident Economic Index, which measures the current environment, increased 0.3 percent in July. In contrast to the forward-looking data, manufacturing was the largest contributor, lifted by higher industrial production and increased manufacturing and trade sales. Increased nonfarm payrolls and personal income were also positive contributors.
Overall, these numbers suggest modest economic growth in the months ahead. Improvements in the housing market are helping drive activity in a sector that remains below its potential, but weaknesses in the manufacturing sector – particularly with slowing or declining new orders – indicate that headwinds in the global and domestic economy are taking their toll. These uncertainties are hampering growth and dampening otherwise-positive enthusiasm for future production among businesses.
Individuals have also been anxious, with consumer confidence lower this summer than earlier in the year. With that said, the University of Michigan and Thomson Reuters announced that consumer sentiment rose slightly in August. Their index of consumer confidence edged higher for the month, from 72.3 to 73.6. Still, this is below the index reading of 79.3 registered in May.
The August increase was led by an improvement in perceptions about the current economic environment, with the index for present conditions up from 82.7 to 87.6. This was counterbalanced, though, with increased concern about the future direction of the economy. The expectations component decreased from 65.6 to 64.5. For comparison, the expectations index was 74.3, illustrating the increased worry about the next six months. With the fiscal cliff being discussed more and more, it should not be a surprise that the public would be registering more unease.
Americans also have greater expectations for inflation over the course of the next year. They now expect 3.6 percent increases in prices in the next 12 months, up from 3 percent in July. This could be the result of higher food and gasoline prices, as consumers tend to react to pocketbook issues on these types of surveys. Interestingly, this runs counter to the latest data from the Bureau of Labor Statistics, which said that consumer prices were flat in July.
Chad Moutray is chief economist, National Association of Manufacturers.
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