The Federal Reserve’s (Fed) Beige Book presented qualitative data that suggested the pace of the economic recovery had been tapering, but now we have quantitative data that is confirming the survey data. The Conference Board’s Leading Economic Index (LEI) increased 0.7% month over month in September to beat Bloomberg consensus expectations of 0.6%, but slowed after rising 1.4% in August and 2% in July.
As shown in the LPL Chart of the Day, the leading indicators are still growing, but at a slower rate than the blistering pace seen in the initial months after emerging from lockdowns.
Growth in the LEI in September was primarily driven by the improvement in jobless claims, as well as continued strength in building permits for new private housing—a trend that matches the behavioral shifts to accommodate work from home conditions during the pandemic. The pullback in stock prices last month and manufacturers’ new orders were the lone detractors from the LEI in September.
“It comes as no surprise that growth began to level off after the surge over the summer, and the softer LEI print is suggesting the economy could be losing momentum heading into the fourth quarter,” said LPL Chief Investment Officer Burt White. “However, despite the slowing momentum, we still expect solid economic growth in Q4, just not quite at the same rate in Q3.”
The decline in manufacturers’ new orders is likely in relation to election uncertainty, which should prove transitory. However, the recent rise in COVID-19 cases in both Europe and the United States may cause business activity to slow, even if no additional lockdowns are mandated. As we head into the fourth quarter, we will continue to monitor real-time data for any additional clues about the pace of the economic recovery.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-05070798