In May 2010, the US leading economic indicator (as compiled by the Conference Board) rose by 0.4%m/m. This was below market expectations for an increase of 0.6%m/m. The April reading was revised up from an initial decline of 0.1%m/m to unchanged month-on-month.
Over the past year, the leading index is still up a very healthy 9.2%y/y but, importantly, it is below the peak annual rate of change of 11.6%y/y recorded as recently as March 2010. The leading indicator has turned-over and is likely to trend lower on an annual basis over the next few months. (See comment below). The 6-month rate of change has already moderated.
The leading indicator is comprised of ten components (see chart attached). During the month only 5 of the 10 components that make up the index rose, while 5 fell. Stock prices, building permits, and new orders for capital goods made the largest negative contributions to the index. These declines were more than offset by the positive contributions from the interest rate spread and money supply.
In terms of an economic recovery, the leading indicator has clearly been pointing to an accelerating improvement in US GDP growth in 2010. In fact, the Conference Board’s Leading Indicator has an excellent track record in forecasting GDP growth by up to one year. However, the most recent moderation in the annual and six-month rate of change, if sustained, would suggest that the US economic recovery could start to lose momentum during 2011.
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