Fellow Shortrunners,

     Both the Conference Board's Index of Leading Indicators and the ECRI Weekly Leading Index were released this week.  Economists use leading indices to try and predict the future course of the economy.  To do this, these indicators track a number of current economic releases thought to influence future growth and use a formula to come up with a composite number, a predicted growth rate for the economy.  The Conference Board's Leading Indicators, the oldest of the two, has a somewhat successful track record, correctly predicting a number of recessions (while incorrectly predicting a few which never occurred).  What are these indexes really telling us?

     Technically the indexes are giving us conflicting data.  The Index of Leading Indicators has risen for the past 3 months, a pretty good sign.  Economists like to follow the Conference Board's index with a rule of thumb rule, that is 3 consecutive declines in the index indicates an upcoming recession.  Thus, three consecutive positive figures is probably a good sign.  On the other side of the coin is the ECRI's leading index.  A weekly index, rather than monthly, the WLI is watched not in its raw number, which rose this week, but in its 6-month growth rate.  Last week, that number increased, but remained negative at -1.5%.

     Even if leading indexes are predicting continued growth, this prediction is contingent on a lack of shocks.  With the President's upcoming State of the Union address and continued disagreement from across the Atlantic, Americans are simply uncertain about the future course of the economy and the extent to which war would have an impact.  Most people don't actually view the economy in this way, in fact a large portion will probably spend this Sunday with the greatest worry on their mind being missing the Superbowl's $2.2 million commercial slots.  But the fact of the matter is, the prospect of a war or of losing one's job really does affect the real economy.  People cut back on their spending, using savings as a contingency plan.  Businesses act in a similar manner.  When managers don't anticipate rising demand, they don't place orders for new equipment and they postpone hiring.  While spending growth has slowed, Americans so far have been resilient.  Low mortgage rates have sent the housing market into one of its greatest booms, both in magnitude and in length.  The fact that the economy is surviving uncertainty suggests that even with conflict in the Middle East, the US economy may be able to avoid a double dip.

Economic Releases

The data section provides charts and data for the most important economic indicators. 

Housing Starts: 5%
Release Date: 1/21

• During December, housing starts jumped an enormous 5% to 1.835 million units.  Tuesday's release suggests that low mortgage rates are keeping demand high and consequently inducing builders to start new projects.  The housing sector will continue to be a boon to overall economic growth.

Treasury Budget: $4 Billion
Release Date: 1/22

• During December, the federal government ran a small surplus of $4 billion, a significant improvement over November, but largely the result of seasonal variations.  The federal government is on track to run a large deficit this fiscal year.

Jobless Claims: 381,000
Release Date: 1/23

• For the week, initial jobless claims rose to 381,000 from 363,000.  Jobless claims have been unusually volatile of late and most economists agree that the trend in jobless claims is suggestive of a continuing weakness in the labor market.

Index of Leading Indicators: 0.1%
Release Date: 1/23

• The Conference Board's Index of Leading Indicators rose to 113.3, an increase of 0.1% in December and a third consecutive month of increase.  Most components of the leading index were positive, with employment measures dragging down the overall rate.  The coincident index, a measure of current economic activity was unchanged, while the lagging index declined 0.3%.

ECRI Weekly Leading Index: 119.5
Release Date: 1/24

• The ECRI edged down from 119.6 to 119.5 this week.  The index's growth rate, released by the ECRI as a means of smoothing out short term volatility in the index and providing a more meaningful predictor of future performance, accelerated from -1.8% to -1.5%, but remained in the red.

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Issue #137

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