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Leading Economic Indicators Increase Slightly in December
Monday, January 27, 2014 6:55 AM

The index of leading economic indicators (LEI) increased a modest 0.1 percent in December, following a more robust 1.0 percent increase in November.

The Conference Board points out one of the positive contributors to the index was further strength for credit conditions, giving some hope that borrowing might pick up over the next six months. On the negative side were unemployment claims and building permits – signs the employment and construction sectors remain fragile.

The report notes, "Despite month-to-month volatility in the final quarter of 2013, the U.S. LEI continues to point to gradually strengthening economic conditions through early 2014."

The Board’s LEI attempts to measure market direction and to estimate cyclical changes. The Board’s coincident economic index, which measures where we’ve been economically, increased 0.2 percent in the December survey – confirmation that growth remains tenuous.

Other Key Indicators:

  • Existing Home Sales plunged 4.3 percent in November to a 4.9 million annual unit rate – the fourth consecutive monthly decline.
  • FHFA Home Price Index increased a modest 0.1 percent in November following a 0.5 percent increase the previous month. Only five of the nine Census regions showed gains.

According to Brian Turner, director and chief strategist with Catalyst Strategic Services, each of the three major components of GDP (consumer spending, government spending and business investment) remains very fragile.

“Most of the 4.1 percent growth experienced in Q3 was due to a 17 percent increase in business investment as companies replenished their depleted inventories,” notes Turner. “Consumer spending, two-thirds of the nation’s GDP, continues to stagger around a 2 percent growth rate. For the economy to experience long-term stable growth, consumer spending must lead the way.”

Even with a 6.7 percent unemployment rate, Turner says the current pace of consumer spending is comparable to when the unemployment rate was 8.8 percent. Moreover, the last two times we were at 6.7 percent unemployment, consumer spending was advancing by 2.8 percent and 3.5 percent (1993 and 1986, respectively) – far greater than today’s pace.

“Of course, weak consumer spending drives current loan demand. While the industry experienced more than a 7 percent increase in loans outstanding during 2013, most of the increase came from a 10 percent increase from institutions with over $500 million in assets,” Turner adds. “Since this group accounts for only 6 percent of the total number of credit unions, we can deduce that the remaining 94 percent collectively experienced a 1 percent decline in loans last year.”