Economic Trends in the US: A Closer Look
The latest data indicates that the Leading Economic Index (LEI) for the US has declined slightly, showing a decrease of 0.1%. This marks a drop to a level of 98.7 (2016=100). This decrease follows a more substantial decline of 0.3% the previous month. Over the six months leading up to July, the LEI fell by 2.7%, which is a quicker rate of decline compared to a contraction of 1.0% observed in the earlier while period from January to June.
Understanding the Factors Behind the Decline
According to Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board, current consumer pessimism regarding business conditions, along with weak new orders, continues to impact the LEI negatively. However, stock prices have provided some support to the index. Additionally, unemployment insurance claims were lower in July, serving as a favorable component, especially considering their earlier negative contributions to the index over the last quarter.
Despite the negative growth rate of the LEI, which persists for six months, it showed a slight improvement in July. However, this was not enough to avert the recession signal that typically accompanies such trends. While no immediate recession is projected, there are expectations of economic weakening in the latter half of 2025 due to rising tariff impacts. Economists are projecting a modest real GDP growth of 1.6% for the year, which is expected to decelerate to 1.3% in 2026.
The Coincident and Lagging Economic Indices
The Coincident Economic Index (CEI) for the US experienced a modest increase of 0.2% as it rose to 114.9 (2016=100), which marked no change from the previous month after a downward revision from an initial estimated rise. Over the course of the first half of the year, the CEI showed an increase of 0.9%, up from 0.6% during the corresponding previous six-month period.
The CEI aggregates four key indicators: payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production. Except for industrial production, all components of the coincident index improved in July.
Lagging Economic Index Stability
The Lagging Economic Index (LAG) remained stable at 119.9 (2016=100) across both June and July. This index has shown an increase of 0.9% over the last six months, reversing a previous decline of 0.1% during the same timeframe.
Important to note is the scheduled release of the next index update on September 18. Regular updates of these economic indicators help provide clarity on the shifting landscape of the economy and support better decision-making for businesses and policymakers alike.
The Purpose of Economic Indexes
The LEI and CEI are critical tools utilized for analyzing trends in economic performance and identifying potential turning points in the business cycle. The LEI is particularly valuable as a predictive tool that can forecast changes in the economic cycle about seven months in advance, while the CEI serves as a reflection of the current economic situation correlating strongly with real GDP.
The components of the Leading Economic Index include ten aspects:
- Average weekly hours in manufacturing
- Average weekly initial claims for unemployment insurance
- Manufacturers' new orders for consumer goods and materials
- ISM Index of New Orders
- Manufacturers' new orders for nondefense capital goods excluding aircraft orders
- Building permits for new private housing units
- S&P 500 Index of Stock Prices
- Leading Credit Index
- Interest rate spread (10-year Treasury bonds less federal funds rate)
- Average consumer expectations for business conditions
The Coincident Economic Index is comprised of four components, which are essential for determining the state of the economy:
- Payroll employment
- Personal income less transfer payments
- Manufacturing and trade sales
- Industrial production
Frequently Asked Questions
What is the Leading Economic Index (LEI)?
The LEI is a composite economic index that is designed to predict future economic activity by measuring variables that typically precede economic movements.
How often are the economic indexes updated?
The economic indexes are typically updated monthly, with the next release scheduled for September 18.
What does a decrease in the LEI indicate?
A decline in the LEI suggests a slowdown in economic growth and can signal potential recessionary periods.
What factors are considered in the Coincident Economic Index (CEI)?
The CEI considers payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production.
Why is tracking economic indexes important?
Tracking these indexes helps economists, businesses, and policymakers to understand economic trends and make informed decisions.
