US OUTLOOK/OPINION: LEI Disappoints, But Bigger Picture Is More Positive (1/2)

The below-expected reading in the Conference Board's US Leading Economic Index (LEI) Thursday (-0.3% M/M in January vs -0.1% expected) was cited by some analysts as a contributor to the risk-off sentiment in the session as it appeared to add another weak data point to those seen in the previous few days (eg retail sales, housing starts). It was the second consecutive deterioration after November's +0.3% (which was the strongest since Dec 2021).

• The monthly LEI figures were most heavily hit in January by negative weekly hours worked in manufacturing and softer consumer expectations. See chart for our categorization of the 10 LEI inputs.
• The bigger picture, though, is that the leading indicators are accelerating: the 6-month change in the LEI reached -1.8%, the best reading since April 2022.
• While the index was somewhat maligned in 2022-23 when many cited it in making the case for calling a recession (which never materialized), it has generally been a decent indicator for major economic turning points.
• And at present, the broad set of LEI indicators suggests that activity is set to pick up. Or at least, the Conference Board describes this as "signaling milder downside risks to growth".
• That's one way of putting it - the downturn in the index overstated the softness of the economy, indeed it missed the re-acceleration to above-trend GDP growth between H2 2022 through end-2024.