March 22, 2022

Where Are The Indicators Leading?


One of the research reports I like to check in on this time of the month is the latest editions in the Leading Economic Indicators.

The LEI sets the tone for the overall direction of the economy. And is used primarily by those Wall Street Analysts who are on the money management side of the business. The so-called buy-side.

What buy-side analysts are looking for is an overall framework from which to make their investment recommendations. A major fund, for instance, doesn't want to be caught investing in a whole bunch of highly speculative growth stocks, just as the economy is headed into a recession. Better to be in bonds or defensive equities.

And the LEI gives that kind of perspective.

It's an overall, 30,000-foot observation of where this country is headed economically.

Now in a normal world, being one who puts together these Leading Indicators, is a fairly straightforward job. In fact, you could call it somewhat boring. You add up all your indicators, such things as initial claims, new orders, building permits. All the usual things that we talk about every day.

Yesterday, incidentally we had the newest of the indicators, the Chicago National Activity Index. And in its short history, this new index has gathered quite a following. It's now used on several of the computations of Leading Indicators.

And like many of the other indicators, the signal from yesterday's Chicago Activity Index is frankly blah. Ok, it is not signaling that we're falling into a recession. At least not yet.

But it is only marginally positive. Indicating an economy that is just barely limping along. This is an index that as recently as the first quarter of 2020, just before the pandemic struck, was reading at over 6.

It's now reading at just ½ of a point. Not negative, but I wouldn't want to bring that grade home to my parents.

And overall that's exactly where this month's Leading Economic Indicators stand. Weak kneed, tepid, barely positive.

Of all the comments on their latest LEI, the most cogent comes from Ataman Ozyildirim who does a great job of rattling off just what's ahead for all of us.

First says Ataman in the Russian Incursion into Ukraine and the subsequent US boycott. This will likely provide for a slowing in the supply chain, rising prices for energy, food, and metals.

Coupled, he says with rising interest rates, labor shortage, and high overall inflation. And don't forget the Pandemic, with lower growth risk from Omnicron, and other Covid variants.

Wow, What a collection of variables. A cornucopia of less than good news.