Tuesday, April 21, 2009

Leading Indicators Drop

Click for a larger image

Pay particular attention to the following points from the press release:

Three of the ten indicators that make up The Conference Board LEI for the U.S. increased in March. The positive contributors — beginning with the largest positive contributor — were real money supply*, interest rate spread, and the index of consumer expectations. The negative contributors — beginning with the largest negative contributor — were building permits, stock prices, index of supplier deliveries (vendor performance), average weekly manufacturing hours, average weekly initial claims for unemployment insurance (inverted), and manufacturers' new orders for nondefense capital goods*. Manufacturers' new orders for consumer goods and materials* held steady in March.

Let's look at these sub-categories of strength and weakness.


Above is a chart of M2 in Logarithmic scale. Notice the chart has continually moved higher at a more or less constant pace since roughly 1996/1997. However, we do see an increase in the angle of the upswing over the last 9-12 months indicating the Fed is injecting money into the system.

The year over year rate of change in M2 popped over the last year, but has since moved lower. Also note the rate of year over year change was higher at one point in the last recession than this recession.

The yield curve is very positive. This should provide banks with a nice spread to help them out of their current problems.

Note the sharp decline in the "getting worse" number and the increase in the "getting better" number. This is an incredibly important development because it could lead to increased consumer spending -- a pretty necessary ingredient to any recovery.


Building permits have been dropping for about two years now. The chart tells us the trend is strong. Considering the total inventory of existing homes on the market (which doesn't include about 700,000 of foreclosed properties) I don't expect this number to increase any time soon.

Do I really need to talk about stock prices?

As for supplier deliveries, I'm not sure which statistic they are using. Here is the supplier deliveries section from the latest ISM report:

The delivery performance of suppliers to manufacturing organizations was faster for the sixth consecutive month in March as the Supplier Deliveries Index registered 43.6 percent, which is 3.1 percentage points lower than the 46.7 percent registered in February. A reading above 50 percent indicates slower deliveries.

The four industries reporting slower supplier deliveries in March are: Furniture & Related Products; Transportation Equipment; Paper Products; and Computer & Electronic Products. The industries reporting faster deliveries in March are: Petroleum & Coal Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Primary Metals; Nonmetallic Mineral Products; Printing & Related Support Activities; Machinery; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Chemical Products.

I'm not sure how they come up with the mixture in the index. But the above points help to flesh out the positives and the negatives that currently exist in the economy.