Leading Economic Index Points to Strengthening Recovery

February 18, 2010

This article is included in these additional categories:

Analytics, Automated & MarTech | Financial Services | Retail & E-Commerce | Staffing

The Leading Economic Index (LEI) rose for the 10th consecutive month in January 2010, according to [pdf] The Conference Board.

Although the LEI’s rate of increase substantially declined following three straight months of increase, the Index still suggests an economic recovery has arrived and is slowly growing stronger.

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The LEI, which measures economic activity for the next six months, rose 0.3%, from a revised score of 107.1 to 107.4. This follows a 1.2% increase in December 2009, 1.1% increase in November 2009, and 0.3% increase in October 2009. Since reaching 102.5 in July 2009, the LEI has risen 4.8%. The LEI declined for 20 straight months before starting its current streak of increases in April 2009.

CEI Also Rises

In addition, the Coincident Economic Index (CEI), which measures current economic activity, rose 0.2% in January 2010, from 99.9 to 100.1. The CEI remained flat from November to December 2009. A score of 100 marks the performance level of both the LEI and CEI in 2004.

Strength Seen Through Spring

According to the Conference Board, the LEI’s continuing growth has been buoyed by improvement in financial markets and a manufacturing upturn. Consumer expectations and housing permits have also contributed to these gains, but to a lesser extent, especially in recent months.

Based on these factors, The Conference Board expects the LEI to continue growing for at least the next few months. “The cumulative change in the U.S. LEI during the past six months has been a strong 9.8%, annualized,” said Conference Board economist Ken Goldstein. “This signals continued economic recovery at least through the spring.”

Other Indices Signal Slower Spending
Despite the positive signals from the LEI, two other consumer indices paint a less optimistic picture of where the economy is headed. A slowdown in consumer wage growth, exacerbated by rising energy costs, contributed to the second straight monthly decline in the Deloitte Consumer Spending Index in January 2010, according to Deloitte. The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, also declined in December 2009 due to energy price inflation.

The Index slipped to 4.31% in January 2010, down 7.5% from an upwardly revised gain of 4.64% in December 2009. Previously, the Index grew for six straight months between June and November 2009. However, the Index is still near its five-year high and is well above its recent low point of 3.07% in October 2007.

In addition, according to the January 2010 American Express Spending & Saving Tracker, U.S. consumers are setting a goal to save money during 2010. Eighty-nine percent of the general population has set a clear financial goal for the year and 83% has a specific savings strategy in place, with a goal of saving on average $14,000 this year and $1,200 by the end of February 2010.

However, the Spending & Saving Tracker also shows some optimistic signs, such as consumer willingness to maintain or increase spending on essentials such as groceries, childcare, healthcare and auto expenses, as well as some less essential areas such as entertainment and dining out.

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