The Conference Board's Leading Economic Index dropped 0.2% in June to 99.1, a fresh sign that the US economy is losing steam. The decline was driven by consumer weakness and a drop in building permits, two of the index's ten components.
Consumer weakness and building permits drag the index
The LEI, a composite of ten leading indicators designed to signal turning points in the business cycle, has now fallen for the first time in three months. The Conference Board attributed the June slide to weakening consumer expectations and a decline in permits for new residential construction. Both factors point to softening demand in the two sectors that have propped up growth in recent quarters.
Consumer spending, which accounts for roughly two-thirds of US economic activity, has shown signs of fatigue. The Conference Board's own consumer confidence survey has been trending lower, and retail sales data have been mixed. Meanwhile, rising mortgage rates and elevated home prices have cooled the housing market, with building permits falling for the second straight month.
What the LEI's decline means
The index is watched closely by economists and investors as a gauge of where the economy is headed. A sustained drop in the LEI often precedes a recession, though not always. The June reading of 99.1 is still above the 100 mark, which is considered neutral. But the downward trend is concerning.
The Conference Board noted that the weakness was broad-based, with six of the ten indicators contributing negatively. In addition to consumer expectations and building permits, the index was dragged down by a drop in stock prices, a rise in initial jobless claims, and a decline in manufacturers' new orders for consumer goods.
The only bright spots were a slight improvement in the interest rate spread and a small uptick in the average workweek in manufacturing.
The Conference Board will release the July data next month. If the index continues to fall, it could reinforce calls for the Federal Reserve to cut interest rates at its September meeting. For now, the economy is still growing, but the pace is slowing. The June LEI reading is a warning light, not a red flag.
