The Conference Board released today their Leading Economic Indicator index which has a less than impressive rise. In reality the index, once you strip out the components of Money Supply and the Fed manipulated “Yield Curve”, was sharply negative. Furthermore, the 6-month change remains mired in recessionary levels and given the distortions tied to M2 though the yield spread, given the drop now underway in long rates, looks to be less of a positive.
From the report:
Ataman Ozyildirim, economist at The Conference Board: “The August increase in the U.S. LEI was driven by components measuring financial and monetary conditions which offset substantially weaker components measuring expectations. The growth trend in the LEI has moderated and positive and negative contributors to the index have been roughly balanced. The leading indicators point to rising risks and volatility, and increasing concerns about the health of the expansion.”
Ken Goldstein, economist at The Conference Board: “There is growing risk that sustained weak confidence could put downward pressure on demand and business activity, causing the economy to potentially dip into recession. While the chance of that happening remains below 50-50, the odds have certainly increased in recent months.”
The flight to cash recently in the market is exaggerating the less than convincing 0.3 percent rise in the index. The Money Supply component has by far contributed the most to August’s gain as investors moved money out of mutual funds and other investment accounts that are not a part of M2 and parked them into cash accounts which are.
The second most positive component in August is the yield spread which has been a leading plus for this report throughout the recovery reflecting the Fed’s near zero short rate policy. However, as stated, the suppression of the longer end of the curve with “Operation Twist” will begin to negate this component.
The drop in stock prices is August’s biggest negative component followed by consumer expectations and the factory workweek.
Overall, the index was exceedingly weak continue to point to a much weaker environment ahead.