Leading economic indicators are flashing yellow, as it becomes clearer that rising COVID-19 case counts and renewed lockdowns are inflicting damage on a budding economic recovery.
On December 18th, the Conference Board released its November report detailing the latest reading for its Leading Economic Index (LEI), a composite of data series that tend to lead changes in economic activity. The index’s value grew 0.6% month over month, suggesting still-positive economic growth, but its value represents the lowest reading since it began recovering from April’s collapse. For context, the monthly growth rate peaked in June at 3.1%, and was growing at a rate of 1.6% just three months ago, as seen in the LPL Chart of the Day.
Seven of the ten component series grew in November, while three declined. Average weekly initial claims for unemployment insurance (inverted), the ISM New Orders Index, and building permits led the way among positive contributors. Average consumer expectations for business conditions, average weekly manufacturing hours, and manufacturers’ new orders for nondefense capital goods excluding aircraft declined in November. Many of these component series, which are released more frequently, have shown additional deterioration so far in December, most notably average weekly initial claims for unemployment insurance (inverted).
“There has been a lot to be thankful for the past month, most notably the start of broad vaccine distribution,” said LPL Financial Chief Market Strategist Ryan Detrick. “But this LEI print, paired with recent disappointing employment data, suggests a continued slowdown early next year is still quite possible. All eyes are now on Washington to provide a bridge solution to get us through to the spring.”
The good news is that policymakers seem to be aware that it is their turn to step up. As of this writing, reports suggest that bipartisan leadership is nearing a deal to provide additional fiscal stimulus support to the economy in the ballpark of $900 billion, which could be announced as soon as this weekend. If reports are to be believed, this would come with another round of direct stimulus checks, albeit smaller, and leave out some of the more contentious issues that have stalled negotiations for the past few months. We believe that this may set the stage for even more stimulus down the road that would incorporate these issues, and potentially even make an attempt at major infrastructure spending. We will continue to monitor these developments, as they will be sure to impact the forward looking data.
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