The US’ index of leading economic indicators rose 0.3% in October. This is positive news for the US economy. While the WTC attacks had a major impact on the US, aggressive rate cuts and buying strategies have been effective to an extent. Although the country is officially in recession, these figures deliver a source of encouragement for US retailers heading into the all-important holiday season.
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The Conference Board said on Tuesday that its index of US economic indicators edged upwards in October following back-to-back monthly declines. The recent rise in stock prices, coupled with the Federal Reserve’s rate-cutting campaign, contributed most prominently to the increase. The index, designed to predict where the overall US economy is headed in the next three to six months, rose to 109.4 in October compared to a base value of 100 for the year 1996.
Even before the attacks on the US in September, the economy had been struggling as stocks tumbled, layoffs mounted and corporate earnings sagged. To some extent, this is still the case. The Board’s coincident index, which measures current economic activity, fell 0.2% to 116.5 in October.
But on the plus side, seven of the ten leading index components – vendor performance, interest-rate spread, money supply, stock prices, manufacturers’ new orders for consumer goods and materials, manufacturers’ orders for non-defense capital goods and consumer expectations – ended the month up.
It’s good news for consumer packaged goods manufacturers and retailers. While the recession is not over, the effects of the 9/11 attacks and accelerated economic downturn can now be more definitively measured to gauge the recession’s depth and estimate the timing of the upturn. This information should allow companies to build long-term recovery strategies, to stimulate investment and development designed to retain consumers through the economic downturn and attract new consumers once the upturn begins.
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By GlobalDataThe now advanced economic contraction makes the coincident index important in gauging the depth of the recession, as well as helping leaders to focus on the timing of the upturn. In the last decade the leading indicator recession alarms have signaled only twice prior to the 2000/01 ringing: correctly signaling the 1990 and providing a false signal during the 1995 Fed-engineered soft-landing. The current recession leaves a 2-1 record.
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