The Conference Board said that the Leading Economic Index (LEI) was up 0.6 percent in July, accelerating from being unchanged in June. The pickup in the forward-looking index corresponds with generally upbeat data recently which tend to show improvements in the economy as we begin the third quarter. With that said, the largest contributors to the increase in the LEI stemmed from increased stock market prices and favorable credit conditions. Those elements alone added almost all of the net gains in July, with other factors more varied.
Increased housing permits and consumer confidence and reduced weekly unemployment claims helped to lift the LEI higher. On the other hand, the manufacturing sector’s contributions were mixed. The reduced average workweek and fewer new orders for nondefense capital goods subtracted nearly 0.1 percentage points from the final figure. This was somewhat counteracted, though, by a surprisingly strong new orders number in the Institute for Supply Management’s July survey and improved consumer goods sales. In total, the manufacturers subtracted 0.01 percentage points from the LEI – a figure that perhaps underestimates the cautious optimism that many businesses have for the coming months.
In contrast, the Coincident Economic Index (CEI), which assesses current conditions, was more upbeat across-the-board. This included positive contributions from industrial production, nonfarm payrolls, personal income, and manufacturing and trade sales. This might be somewhat counterintuitive given the fact that manufacturing production fell 0.1 percent in July, but overall industrial production did record a very small gain for the month (even as it was reported as being unchanged).
Chad Moutray is the chief economist, National Association of Manufacturers.