Leading indicators are inching back to cycle highs, according to Liz Ann Sonders, chief investment strategist at Charles Schwab.
In her latest market commentary, Sonders writes, “The uptick in the leading indicators confirm what other data releases for the U.S. economy show, which is that growth has rebounded a bit after a very slow start to the year.”
Sonders, who is known to often keep a close eye on leading economic indicators, looks at what she calls “the most widely-watched index,” The Conference Board’s monthly Leading Economic Index (LEI).
“Taken together, the current behavior of the composite indexes and their components suggest that the expansion in economic activity should continue, but the pace of growth is likely to decelerate by year end,” according to The Conference Board’s release.
The LEI for March increased by 0.4%, which was better than expectations and led by the continued plunge in initial unemployment claims.
According to Sonders, “the gain in March was sufficient to get the LEI back up above the September 2018 high and further ease near-to-medium term recession concerns.”
Although the March reading did slightly beat last September’s high, Sonders noted that it’s been in a fairly flat trend since then.
The Conference Board specifically noted in its release that the “weaknesses and strengths among the leading indicators have become equally balanced over the last six months.”
In fact, in this most recent six month stretch, the LEI’s 0.4% rise was much slower than the 2.8% growth during the prior six month stretch.
The Conference Board also stated that “taken together, the current behavior of the composite indexes and their components suggest that the expansion in economic activity should continue, but the pace of growth is likely to decelerate by year end.”
While the uptick in the trend in initial unemployment claims may have led to March’s increase, Sonders said “there are a few caveats worth noting with regard to the celebratory aura surrounding claims’ downside breach of 200k.”
Until the LEI’s latest release, initial unemployment claims had been in a worsening trend.
“Yes, the fewest people in nearly 50 years filed for unemployment insurance in the past couple of weeks, but it’s not solely due to the tightness in the labor market,” Sonders wrote.
According to Sonders, many states have imposed stricter rules on their unemployment insurance programs — including making it harder to qualify, reducing the duration of benefits and cutting payouts.
According to a recent AP report, 30% of people out of work in the United States now receive unemployment insurance, down from about 40% before the Great Recession.
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