October’s leading indicators show the domestic economy could be bottoming.
The Conference Board’s Leading Economic Index (LEI) declined 0.1% in October, following a downwardly revised 0.2% decline in September. As shown in the LPL Chart of the Day, the LEI grew 0.3% year over year last month, tying June 2016 for the slowest growth of the expansion. Historically, year-over-year declines have preceded every U.S. recession since 1955, so we monitor this metric in our Five Forecasters.
Even though the gauge barely eked out a year-over-year gain last month, we see signs that the worst may be over for the domestic economy.
Manufacturing continues to have an outsized impact on the LEI. While manufacturing weakness is concerning, the sector has been in decline for many months because of the global economic slowdown. October’s slight increase in initial jobless claims also dragged on the LEI, but unemployment claims are still near a cycle low. We’d expect to see a larger pickup in claims if a recession were around the corner.
Slowing year-over-year LEI growth has also been more reflective of past economic strength than present weakness. In 2018, the LEI surged as much as 6.6% year over year through September before trade tensions flared up. Since then, the gauge’s long-term growth has slowed as the domestic economy has moderated from an impressive pace.
Now that the LEI has been largely flat for over a year, future releases may be more indicative of where the economy could be heading.
“The year-over-year LEI print was this low earlier in the cycle, and we recovered,” said LPL Financial Senior Market Strategist Ryan Detrick. “However, we believe a positive macroeconomic catalyst, such as a potential ‘phase one’ trade deal with China, will be necessary before LEI growth can pick back up.”
IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.
If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:
| Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit |
For Public Use | Tracking #1-920387