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U.S. Leading Economic Indicators Rose Again

The most important forward-looking measure of U.S. economic activity, the leading economic indicators, rose four-tenths of 1% in July, confirming that the U.S. economy is continuing to grow.

The leading economic indicators is an important data series for forecasting the immediate future.  The 10 components of the LEI measure consumer expectations, weekly unemployment insurance claims, and the average number of hours worked, but most of the 10 components measure new orders of manufacturing and consumer goods, as well as housing.  New orders drive growth, and that's why the LEI is important.

The LEI is also a good indicator of a slowing economy. In the months preceding the previous two recessions — shown in the areas shaded in gray areas — the LEI began to descend.

Not only is the LEI in recent months not dipping, but it is actually gathering strength.  The index, which is calculated by The Conference Board, an association for large companies, went sideways for months in 2002 and 2003 and then surged, and the same thing happened in 2007. 

After going sideways in 2015, the LEI in 2016 started a trend upward. That is a good sign of future growth. 

The Standard & Poor's 500 index of U.S. stocks closed Friday at 2,183.87, and was just a fraction lower for the day and for the week.  Stock prices remained near an all-time high reached just a week earlier, and could experience a 10% correction at any time.  However, none of the precursors to economic weakness were evident, and the latest data on the leading economic indicators show the long economic expansion is rolling along. In fact, the U.S. economy may well be at the start of a new period of growth.

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