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Economy in Brief

U.S. LEI Weakness in April… One Trick Pony
by Robert Brusca May 17, 2007

The LEI is increasing its year/year pace of decline and is now falling by 0.7% year/year. However, a brief look at history shows that the current combination of a weak LEI and weak coincident index is not producing a weakening at a pace that signals recession. They are weakening more like they did in 1995, but not even as severely as that…and there is less weakening power in the pipeline that it seems.

Periods in which the coincident index is growing more slowing than the leading index do tend to be slowdown periods. But not all of them become recession periods. Some of them are extended periods that eventually transition into recession. Only the aftermath of the 1995 episode left a good solid period of growth in its wake.

While the LEI has dropped to a weaker growth rate on year/year measures, this is not a period with increased downward momentum in general. The 3-month and 6-month rates of growth are not getting progressively lower. The six month rate speeded up but the three-month rate is the one that has fallen sharply. Over the same recent three-months the coincident index has speeded up slightly. The LEI has been very flat so that there is really little in the way for further declines in the pipeline from one-year ago. May of 2006 was weaker than April of that year implying that the year/year LEI will be lower by only 0.2% year/year unless it falls further in May. Even the three-month growth rate (annualized) is not set for further weakness despite its relatively sharp drop in April. If the LEI is unchanged next month it will rise in May over the next three-month period, not fall.

Apart from these technical considerations there are the economic data that have begun to show a bit more strength.

The LEI is falling. Its rate of decline has accelerated this month. But there does not appear to be an ongoing process here nor does the rate of descent appear to be particularly disturbing.

Leading Economic Indicators
  LEADING COINCIDENT LAGGING
Month-to-month
Apr-07 -0.5% 0.2% 0.2%
Mar-07 0.6% 0.1% 0.0%
Feb-07 -0.6% 0.2% 0.2%
Jan-07 -0.3% -0.1% -0.1%
SAAR
3-Mos -2.0% 1.6% 1.6%
6-Mos -0.4% 1.3% 3.7%
12-Mos -0.7% 1.7% 3.3%
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