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Leading Indicators Jump, But Not Very High

The current recovery has presented a constant challenge of the "less bad" -- knowing how long it takes for any particular indicator to reach truly positive territory, rather than just bouncing slightly off the bottom. Today's index of leading indicators is such a one, showing a large gain for the month -- 1.4 percent versus a 1.1 percent consensus estimate, and the biggest increase in 10 months, but when you take a good look, we still have a long way to go.

For this insight I rely on David Rosenberg, economist nonpareil at Gluskin Sheff + Associates, one of Canada's pre-eminent wealth management firms. He sends out a daily letter of economic comment, but unfortunately there is no easy link.

Per Bloomberg, commentary on the headline of today's report of leading economic indicators:

The 1.4 percent increase in the New York-based Conference Board's measure of the outlook for three to six months was more than anticipated and followed a revised 0.4 percent gain in February.

Manufacturers are ratcheting up production and factory workers are putting in longer hours as companies rebuild inventories and ship more goods overseas.


Seven of the 10 indicators in the leading index contributed to the gain, led by the interest-rate spread, an increase in factory hours, slower supplier deliveries, gains in stock prices and rising building permits. Shrinking money supply, fewer orders for capital goods and a drop in consumer expectations weighed on the index.

Looks great at first glance, but Rosenberg compares the leading indicators to the lagging indicators, and contends we're missing important follow-through:
[T] the coincident-to-lagging index, which is sort of like a book-to-bill ratio for the economy, hit a green-shoot peak of 92.9 in January and has stayed at that level ever since.
Here's a graph making the point:

Rosenberg vouches for the leading-lagging relationship, saying it predicted growth in the recovery of 2002 that the leading index itself failed to spot.

He also shares a graph on an alternative leading index, from a group called Economics Cycle Research Institute (ECRI), which I confess I don't know but intend to before the next report on leading indicators:

Rosenberg explains:

The weekly ECRI leading economic indicator ... has also receded discernibly from the recent peak and the smoothed index is down to its lowest level since last July. While seemingly at odds with the Conference Board measure, it tends to be more timely around inflection points - for example, it gave a heads-up on the recession a good month before the Conference Board's LEI did and did the same on the recovery (about three months earlier).
We're improving, but the U.S. economy still has plenty of hard work ahead.