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Leading Indicators Show Optimism For Domestic Economy

Leading Indicators Show Optimism For Domestic Economy

September 24, 2021
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On Thursday, September 23, the Conference Board released its August 2021 report detailing the latest reading for the Leading Economic Index (LEI), a composite of ten data series that tend to lead changes in economic activity. Many economic data points are backward-looking, but we pay special attention to the LEI, as it has a forward-looking tilt to it and spans many segments of the economy. The index grew 0.9% month over month, the highest in three months and slightly ahead of expectations for 0.7%.

“August’s strong LEI growth supports the idea that the longer term recovery remains intact despite the latest COVID-19 flare-up,” said LPL Financial Chief Investment Strategist Ryan Detrick. “We continue to expect a strong fourth quarter GDP print coming off some softness in Q3.”

As seen in the LPL Chart of the Day, the LEI’s growth rate inflected higher off June’s low.

View Enlarged Chart.

Eight of the ten components rose in August, while one fell and one held steady. Average weekly initial claims for unemployment insurance, the Institute for Supply Management (ISM) New Orders Index, and building permits represented the three largest positive contributors. The lone negative contributor was average consumer expectations for business conditions, while average weekly manufacturing hours remained unchanged. Strong breadth among component indexes gives us increased confidence in the resilience of the economy.

When making investment recommendations, we always advocate taking a long-term view and not overreacting to the day-to-day newsflow. The economic backdrop is and always will be the most important factor in determining asset allocation, and despite some near-term challenges we continue to believe we are in the early stages of a new economic cycle, which should continue to power risk assets for years to come. August’s LEI report should help to reinforce that notion and we continue to recommend overweight allocations to stocks.

 

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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. All index and market data from FactSet and MarketWatch. 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 that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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