In just three hours, the Conference Board will release its latest Leading Economic Index — the number that Wall Street, and increasingly the Gulf, uses to gauge where the US economy is headed next. Joining me to discuss this is Alejandro Fiorito, economist with The Conference Board. Alejandro, thank you for joining us this morning.
Thank you very much for having me.
Walk me through what goes into this index and why it is considered such a reliable signal seven months out.
The LEI — the Leading Economic Indicators index — is a composite that my colleagues in New York put together monthly for the US economy. We also produce it for other countries. The attempt is to indicate where the economy may be heading in the near term. The index has ten components — four non-financial and six financial. We measure whether these components are accelerating or decelerating relative to their long-term averages. They are a good signal of where the economy is heading, particularly over the next three to six months, and help us understand the momentum and drivers of the economy as a whole.
Which components are you watching most closely this month?
The interesting dynamic from the last few months is that the financial components — stock prices and yields — have been driving the positive momentum. The key question is whether those remain strong enough to keep pushing the index up. On the real economy side, we are seeing some weakness. Consumer confidence has been declining, though the component most relevant to the LEI — consumer expectations for business conditions — has been improving slightly. So the two buckets I am watching most closely are: how much are financial indicators continuing to support the index, and how are consumers feeling. I anticipate the June reading will show a moderate slowdown in the LEI — something we will continue to track. The trend matters as much as any single number.
The big picture story you are telling is a rebalancing — investment driving growth while consumers feel more sluggish. Is that the right way to read it?
Yes. In our GDP projections for the US, we are seeing investment driving most of the growth — consistent with the financial market strength I mentioned — while consumers, who were the big contributors to the post-pandemic recovery, are feeling more sluggish in recent months. We project this will rebalance: investment becoming less dominant in coming quarters and consumers gradually recovering. The LEI should start to show that rebalancing. The key will be whether it is a smooth rebalancing or a more unstable one — which could point to pockets of vulnerability.
For our viewers in Dubai and Abu Dhabi — what should they be watching for the moment that number drops?
I don't anticipate a big change, but the trend is the more important story. In particular, how the components move will be key for assessing the Fed's decision next week. The market consensus is one more rate hike this year. At the Conference Board, we deviate from that consensus — we believe there will be no hikes this year. The LEI should tell the story of an economy in a certain imbalance, and for that reason the Fed — operating in a very uncertain environment with a new chair reviewing its framework — will likely remain cautious and hold steady. That is our view for the rest of the year.
Thank you so much, Alejandro. We appreciate you joining us here on Capital Markets.
