U.S. economy: What the indicators say

Written by: Global Thought Leadership | April 07, 2017
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Source: Bloomberg, as of 2/28/17. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


The Bottom Line

  • For the first time in more than a decade, the Conference Board’s index of leading economic indicators (LEI) hit a new high—reaching 126.2 in February (versus a previous peak of 125.9).1
  • That gap between highs is much longer than anything seen since the index started in 1959; the next longest gap was six years, coming between October 1978 and November 1984.
  • While the slow climb back isn’t surprising, given the lugubrious pace of recovery in general since financial crisis, it’s well worth considering what has happened following previous highs for the index.
  • Many have observed that a new high in the LEI has generally coincided with the start of faster growth in average hourly earnings as well as Federal Reserve tightening.
  • What’s more, it’s been roughly six years on average between past LEI highs and the start of the next recession, according to Jeff Schulze, Investment Strategist at ClearBridge Investments.
  • Now, that doesn’t mean the current expansion will last another six years, but it certainly suggests that the U.S. economy could still have some room to run.
  • If wage and salary growth accelerates further from here, it could provide support for an economy that is over 70% driven by consumer spending. And if Fed tightening is well communicated and reflects strengthening growth, then it needn’t be seriously disruptive to markets.
  • Yet even with a positive outlook for continued growth, valuation in both the stock and bond markets point to the need for careful security selection, broad diversification across sectors and asset classes and the flexibility to make adjustments as market conditions fluctuate.


1 Source for all data is Bloomberg, as of 2/28/17.



IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

Diversification does not guarantee a profit or protect against loss.