The Conference Board said that the Leading Economic Index (LEI) was up 0.7 percent in August, building on the 0.5 percent increase in July. The pickup in manufacturing activity was one of the major drivers of the higher figure, with the three components for sales adding 0.25 percentage points to the LEI. The sharp increase in new orders in the Institute for Supply Management’s purchasing managers’ index was a large factor in this. Increases in the average workweek for production workers contributed another 0.13 percentage points.
Other positives for the LEI included lower initial unemployment claims and favorable data on the interest rate spread and credit availability. In contrast, reduced housing permits in August were a drag for the LEI, with consumer confidence and equity prices providing a neutral contribution.
Meanwhile, the Coincident Economic Index (CEI) was up 0.2 percent in August, higher than the 0.1 percent gain of July. Each of the four components that go into the CEI provided positive contributions to the measure. This includes increases in industrial production, nonfarm payrolls, personal income, and manufacturing and trade sales.
Overall, growth in these measures over the past two months is indicative of the acceleration in activity that we have seen lately in the macroeconomy. This report suggests that growth should continue over the coming months. With that said, there continue to be some downside risks in the economy that could thwart the momentum in the coming months, with fiscal uncertainties over the next few weeks potentially being particularly unsettling to markets. In addition, higher interest rates and petroleum costs could also dampen growth rates, with the housing sector already beginning to show signs of stalling.
Chad Moutray is the chief economist, National Association of Manufacturers.