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Portfolio > Economy & Markets > Economic Trends

Conference Board Leading Economic Index for June Signals Recovery Is Slowing as Feared

By Joyce Hanson

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The Conference Board’s leading economic index for the U.S. fell 0.2% in June to 109.8, following a 0.5% increase in May and a 0.1% decline in April, the board said Thursday, July 22, in a news release.

The drop in the 10-component gauge of the economy confirms that the U.S. recovery is indeed slowing, as economists have been saying over the last two months. Indeed, Federal Reserve Chairman Ben Bernanke said in congressional testimony this week that financial conditions such as unemployment and a lackluster housing market have become less supportive of growth.

The leading economic index (LEI) reading fell within the flat to 0.5% range economists had predicted.

Inside the private New York-based Conference Board, the expectation is that two key economic components will be a drag on growth in the second half of 2010.

“The indicators point to slower growth through the fall,” said Ken Goldstein, economist at The Conference Board, in the LEI release for June. “Two trends will have a direct impact on the pace of economic expansion. First, improvement in the industrial core of the economy will moderate as inventory rebuilding slows. Second, improvement in the service sector has been relatively slow, with little indication that it will pick up momentum.”

The 10 components of the index include: average weekly hours, manufacturing; average weekly initial claims for unemployment insurance; manufacturers’ new orders, consumer goods and materials; index of supplier deliveries – vendor performance; manufacturers’ new orders, nondefense capital goods; building permits, new private housing units; stock prices, 500 common stocks; M2 money supply; interest rate spread, 10-year Treasury bonds less federal funds; index of consumer expectations.

Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, said in an analyst note that the index’s details are worse than the headline, where the drop was limited by a rise in M2 and the steep yield curve. Calling it the worst performance since March 2009, Shepherdson said: “Two bad months do not make a trend, but the slowing over the past few months is clear.”

Despite the gloomy talk, the overall picture painted by the LEI components shows that while the nation’s economic recovery may be slow, it is real, according to the Conference Board economists.

“The LEI decreased in two of the last three months, but its level is still about 4.5% above its previous peak before the recession began,” said Ataman Ozyildirim, another board economist. “The gains among the LEI components have been widespread, with the exception of housing permits and stock prices, pointing to an expanding economy, but at a slower pace in the second half of the year.”

Read a story about June’s Conference Board consumer confidence index from the archives of InvestmentAdvisor.com.

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