LEI: Uptick Unsustainable


My fishing pal and eel skinner Martin Barnes writes:

The Conference Board’s leading economic indicator (LEI) ticked up in December, but we do not view this as the beginning of a sustained economic recovery.

The tick up in the LEI was mainly due to the large positive contribution from real money supply and the yield curve. Meanwhile, measures of the real economy continue to weaken: large declines occurred in building permits, employee hours worked, supplier deliveries, while initial unemployment claims are skyrocketing. It is still unclear that monetary and fiscal policy are effective (private sector borrowing rates have only marginally fallen) and the housing market is still very weak. True, existing home inventories fell in December, but seasonal factors played a large role (inventories always fall during the autumn and winter). Improved activity levels during the spring selling season, should they occur, would be a more accurate signal that the housing market is stabilizing. However, the unemployment rate is set to still rise sharply, which will further undermine consumer confidence and spending, particularly on big ticket items. Bottom line: Economic data will continue to be weak and the LEI will likely slide further before a sustainable bottom is made.

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