Leading Indicators Show Optimism For Domestic Economy

On Thursday, September 23, the Conference Board released its August 2021 report detailing the latest reading for the Leading Economic Index (LEI), a composite of ten data series that tend to lead changes in economic activity. Many economic data points are backward-looking, but we pay special attention to the LEI, as it has a forward-looking tilt to it and spans many segments of the economy. The index grew 0.9% month over month, the highest in three months and slightly ahead of expectations for 0.7%.

“August’s strong LEI growth supports the idea that the longer term recovery remains intact despite the latest COVID-19 flare-up,” said LPL Financial Chief Investment Strategist Ryan Detrick. “We continue to expect a strong fourth quarter GDP print coming off some softness in Q3.”

As seen in the LPL Chart of the Day, the LEI’s growth rate inflected higher off June’s low.

View Enlarged Chart.

Eight of the ten components rose in August, while one fell and one held steady. Average weekly initial claims for unemployment insurance, the Institute for Supply Management (ISM) New Orders Index, and building permits represented the three largest positive contributors. The lone negative contributor was average consumer expectations for business conditions, while average weekly manufacturing hours remained unchanged. Strong breadth among component indexes gives us increased confidence in the resilience of the economy.

When making investment recommendations, we always advocate taking a long-term view and not overreacting to the day-to-day newsflow. The economic backdrop is and always will be the most important factor in determining asset allocation, and despite some near-term challenges we continue to believe we are in the early stages of a new economic cycle, which should continue to power risk assets for years to come. August’s LEI report should help to reinforce that notion and we continue to recommend overweight allocations to stocks.


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All index and market data from FactSet and MarketWatch.

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