In his latest note, Gluskin-Sheff’s David Rosenberg throws cold water (surprise) on yesterday’s strong leading indicators number:
U.S. leading indicators jumped 1.4% mum in March, tied for the second
strongest in the past year. Consensus was looking for +1.1%. Seven of the 10
sub-indices were up –so the breadth was good. The yield curve continues to be
the primary force – adding 0.38% to the headline.
As Dennis Gartman likes to point out, the coincident-to-lagging index, which is
sort of like a book-to-bill ratio for the economy, hit a green-shoot peak of 92.9 in
January and has stayed at that level ever since. When it was sputtering back in
the opening months of 2002, as the equity market was bouncing sharply higher
on post-recession/stimulus V-shaped recovery hopes at the time, this index gave
a great heads-up on the growth relapse we saw in the second half of that
year. The LEI, however, actually never saw the 2002 growth relapse happening
– it’s almost hard to believe it printed +0.9% in May just as the renewed
slowdown in final demand was taking hold.
The weekly ECRI leading economic indicator (see second chart below) has also
receded discernibly from the recent peak and the smoothed index is down to its
lowest level since last July. While seemingly at odds with the Conference Board
measure, it tends to be more timely around inflection points – for example, it
gave a heads-up on the recession a good month before the Conference Board’s
LEI did and did the same on the recovery (about three months earlier).
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