There’s a good reason we have avoided a recession, I said last week. Consumers’ personal financial conditions have improved, so they continue to shop, and they are responsible for 70 percent of economic activity.
Now the Conference Board’s Index of Leading Economic Indicators (LEI) is agreeing with them for the first time in six months. It is one of the few indexes that attempts to predict future growth but has been stagnant for two years and showed negative GDP growth since August 2023.
“The U.S. LEI rose in February 2024 for the first time since February 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index™, and residential construction drove the LEI’s first monthly increase in two years…Despite February’s increase, the Index still suggests some headwinds to growth going forward. The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”
It uses indicators such as the direction of interest rates and workers’ hours to gauge future trends. The LEI is still lagging real GDP growth, per the below graph of both.
Because the main contributors to manufacturing’s current growth are a roaring stock market and increased working hours in manufacturing, will manufacturing finally come to life this year?
Preliminary S&P indexes for manufacturing and the service sector are both ‘flashing’ green lights. The flash U.S. manufacturing purchasing managers index climbed to a 22-month high of 52.5 this month from 52.2 in February. The S&P flash U.S. services PMI slipped to a three-month low of 51.7 in March from 52.3 in the prior month, but numbers above 50 signal growth in the economy.
The Atlanta Fed puts out another predictor of future growth. Its GDPNow Q1 estimate is 2.1 percent on March 19, down from 2.3 percent from March 14 after slowing first-quarter personal consumption expenditures growth and first-quarter real gross private domestic investment growth.
This may be temporary, however, as consumers and businesses are usually cautious at this time of the year while they attempt to assess their future.
The good news is that Wall Street is booming and even the housing market seems to be recovering, in spite of the Fed’s inaction on interest rates.
Stock indexes are at record highs, and existing-home sales surged 9.5% in February to a seasonally adjusted annual rate of 4.38 million, the largest monthly increase since February 2023. The inventory of unsold existing homes increased 5.9% from one month ago to 1.07 million at the end of February, or the equivalent of 2.9 months’ supply at the current monthly sales pace, which will further boost sales.
Federal Reserve Chairman Powell said they are in no hurry to cut interest rates because the US economy is meeting the Fed’s twin mandates of stabile price and maximum employment in his latest congressional testimony.
This should reassure Americans there is strong growth ahead.
Harlan Green © 2024
Harlan Green on Twitter: https://twitter.com/HarlanGreen
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