The Federal Reserve’s (Fed) Beige Book presented qualitative data that suggested the pace of the economic recovery had been tapering, as we discussed in the LPL Research blog, Beige Book Shows Pace of Recovery is Moderating, but now we have quantitative data that is confirming the survey data. The Conference Board’s Leading Economic Index (LEI) increased 0.7% month over month in September to beat Bloomberg consensus expectations of 0.6%, but slowed after rising 1.4% in August and 2% in July.
As shown in the LPL Chart of the Day, the leading indicators are still growing, but at a slower rate than the blistering pace seen in the initial months after emerging from lockdowns.
Growth in the LEI in September was primarily driven by the improvement in jobless claims, as well as continued strength in building permits for new private housing—a trend that matches the behavioral shifts to accommodate work from home conditions during the pandemic. The pullback in stock prices last month and manufacturers’ new orders were the lone detractors from the LEI in September.
“It comes as no surprise that growth began to level off after the surge over the summer, and the softer LEI print is suggesting the economy could be losing momentum heading into the fourth quarter,” said LPL Chief Investment Officer Burt White. “However, despite the slowing momentum, we still expect solid economic growth in Q4, just not quite at the same rate in Q3.”
The decline in manufacturers’ new orders is likely in relation to election uncertainty, which should prove transitory. However, the recent rise in COVID-19 cases in both Europe and the United States may cause business activity to slow, even if no additional lockdowns are mandated. As we head into the fourth quarter, we will continue to monitor real-time data for any additional clues about the pace of the economic recovery.
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