Is It Time to Take the Economy Off Life Support?
The pulse of the economy is throbbing, if the latest economic indicators are anything to go by. The Conference Board’s Leading Economic Index (LEI) and Coincident Economic Index (CEI), which measure the overall health of the economy, are showing the kind of growth that could get the economy off its medication sooner rather than later.
The Conference Board’s Leading Economic Index for the U.S. increased for the fifth consecutive month in June. An increase in the leading indicators, or LEI, means that economic activity is likely to accelerate in the coming months; vice versa for a decrease. A leading indicator generally precedes shifts in economic activity, so these indicators have a predictive value.
In the first half of this year, the leading economic index increased 2.7 percent (about a 5.5 percent annual rate), though it was slower than the growth of 3.5 percent (about a 7.2 percent annual rate) during the second half of 2013. Six of the 10 indicators that make up the Conference Board LEI for the U.S. increased in June.
The positive contributors were indicators like the Leading Credit Index, stock prices, the ISM new orders index, manufacturers’ new orders for non-defense capital goods excluding aircraft, and manufacturers’ new orders for consumer goods and materials. The negative contributors were building permits, average weekly manufacturing hours, and average weekly initial claims for unemployment insurance. The LEI for the U.S. increased 0.7 percent in May and 0.3 percent in April.
Independently, the Institute for Supply Management’s new orders index climbed 2 points to 58.9 percent from 56.9 percent in June. The Dow Jones Industrial Average, an indicator of how equities have performed, has also gained about 3.13 percent since January this year, indicating investors’ belief that economic growth will pick up pace in the second half of this year.