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Leading Economic Indicators Hit 10-Year High

The U.S. Index of Leading Economic Indicators (LEI) is as high as it's been in over a decade, according to data released Friday.

Designed by The Conference Board, a private business group, the LEI is a composite of 10 indexes to signal peaks and troughs in the business cycle. In addition to hitting a new high mark, the LEI in February surged higher by six-tenths of 1% for the third consecutive month. It was the sixth straight month of gains in the index - a significant acceleration.

A forward-looking component of the LEI, the new orders index, rose more than any of the 10 sub-indexes, which indicates the pipeline of new business about the enter the supply-chain pipeline is loaded up and that increase in activity can be expected to start trickling down on the economy in the weeks ahead.

"Widespread gains across a majority of the leading indicators points to an improving economic outlook for 2017, although GDP growth is likely to remain moderate," said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. "Only housing permits contributed negatively to the LEI in February, reversing gains over the previous two months."

In the six-month period ended February 2017, the leading economic index increased 2.3% - about a 4.6% annual rate. That's much faster than the growth of 0.8% (about a 1.6% annual rate) during the previous six months.

The good news on the LEI followed news on Wednesday that the consumer price index - a widely watched barometer known as the "headline" inflation rate - rose sharply to 2.8%. However, other measures of inflation were closer to the Federal Reserve's target rate of 2%.

The Federal Reserve chair, Janet Yellen, said at a press conference this past Wednesday that the nation's central bank had indeed accomplished its legislatively-mandated mission of promoting full employment while keeping inflation in check. The economy has fully recovered and interest rates have been normalized, marking a long journey back from the near-collapse of the world financial system in 2008.

"The (Federal Open Market) Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate," according to a statement issued by the Federal Reserve.

For investors, it's wise to expect that long-term bond prices will suffer in the months ahead if the Fed continues to raise rates, as Ms. Yellen said she expected to do. In this scenario, short-term fixed income investments, which offer yields that rise when interest rates are hiked, will be more attractive to income-seeking investors.

The Standard & Poor's 500 index rose fractionally, by 0.2%, for the week, despite the fact that rising rates are usually unwelcome for fear of slowing economic growth and hurting corporate profits. The S&P 500 is within 1% of its record high.

Stocks have soared nearly 12% since the presidential election on November 8, 2016, because economic news has been so bright and investors have begun to expect a major tax break to be enacted by Congress. With political intrigue dominating headlines again last week, however, an enactment of health care legislation as well as a tax overhaul is far from certain, a correction of 10% or 15% is possible at any time.

So, in closing, we remind you that, while he delivered good news on this St. Patrick's Day, the little man is known as a trickster, especially in financial matters.

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