Index of Leading Indicators Rises

Conference Board data show that their index of U.S. leading indicators for economic growth in the next 3 to 6 months rose in May by 0.8%.  This compares to economist expectations of a rise of 0.3%.

Analysis: Eight of the ten components that make up the index rose.  Pundits tended to focus on two factors in particular.

1. Increases in commodity prices are expected to peak and then fall.  This includes the cost of fuel and food – two large components of consumer budgets.
2. Auto industry supply chain bottlenecks caused by the Japanese earthquake are abating.  This should lead to a recovery in the auto industry which has been strongly affected by mother nature.

I am going to focus on the fact that the U.S. consumer’s sentiment has plateaued and declined slightly.  To me the U.S. unemployment rate and the lack of anything to truly be excited about are the most important economic factors right now.

Instead of things to be excited about the U.S. consumer still feels that the recession is not fully over, that the jobs situation is tenuous, that the two party system is at a continuous loggerhead, and that the U.S. is still embroiled in Iraq and Afghanistan.  The palpable sense seems to be one of exhaustion, not revival.

The silver-lining to this whole situation is that the U.S. consumer is usually a lagging indicator.  That is, they do not often anticipate, so much as react to news.  So if there is good news on the jobs front, or political front, or military front then consumer sentiment will improve rapidly.

Importance grade: 6; this news will mostly affect the business community and the investment community.  If investors actually give enough of a damn then the stock markets are likely to rebound.  But I think the news that investors are really focused on are the twin debt crises: Greece and U.S.  The Greek crisis looks as if it is near resolution, while the U.S. crisis has a “clarity deadline” of 1 July, 2011 that is fast approaching.  On 2 July investors will have much greater clarity as to whether the U.S. debt crisis is resolved or if it is going to be a long slog.  Either way, they will react.

Jason