In April 2010, the US leading economic indicator (as compiled by the Conference Board) fell by 0.1%m/m. This was below market expectations for an increase of 0.2%m/m (the market did not expected building permits to fall so sharply earlier in the week). The April decline is the first fall in the leading indicator since March 2009.
Over the past year, the leading index is still up a very robust 10.2%y/y but, importantly, this is below the peak annual rate of change of 11.5%y/y in March 2010. The leading indicator has turned-over and is likely to trend lower on an annual basis over the next few months. (See comment below). The 6-month rate of change has already started to moderate.
The leading indicator is comprised of ten components (see chart attached). During the month only 4 of the 10 components that make up the index rose, while 6 fell. Building permits, supplier deliveries, real money supply and weekly initial unemployment insurance claims made the largest negative contributions to the index, which more than offset the positive contributions from the interest rate spread, stock prices, and the average workweek.
In terms of an economic recovery, the leading indicator has clearly been pointing to an accelerating improvement in US GDP growth in 2010. In fact, the Conference Board’s Leading Indicator has an excellent track record in forecasting GDP growth by up to one year. However, the most recent moderation in the annual and six-month rate of change, if sustained, would suggest that the US economic recovery could start to lose momentum during 2011.
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