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.