The Conference Board’s Leading Economic Indicators is signaling a continued slowdown in the recovery, but the key gauge of future economic activity suggests that the economy will skirt a recession.
The Leading Indicators, which is a compilation of ten separate pieces of data designed to foreshadow future economic activity, rose a scant 0.1% in July, following June’s 0.3% decline and a more modest 0.5% rise in May.
“The indicators point to a slow expansion through the end of the year,” says Ken Goldstein, economist at The Conference Board. “With inventory rebuilding moderating, the industrial core of the economy has moved to a slower pace. There appears to be no change in the pace of the service sector. Combined, the result is a weak economy with little forward momentum.”
However, the good news is that the data do not point to a recession.”
Ataman Ozyildirim, an economist at The Conference Board added, “The economy should continue expanding, albeit slowly. The LEI is growing at its slowest pace since mid-2009 and it has been essentially flat since March. However, the index is still well above pre-recession levels.”
Looking at some of the components of the index, the interest rate spread, supplier deliveries and the average workweek made the largest positive contributions in July, more than offsetting the negative contributions from consumer expectations, building permits and real money supply.
Bad news piles up
Nonetheless, Wall Street was pressured after a disappointing rise in weekly jobless claims and an early signal from the Philly Fed’s Business Activity Index that manufacturing growth may be stalling (see Jobless claims in upward trend, Philly Fed turns negative).
Most analysts do not see another contraction, but the rise in jobless claims to the highest level this year and unexpected weakness in manufacturing indicate that softness in economic activity will not be abating any time soon.
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