Leading Economic Indicators Edges Higher

The index of leading economic indicators edged only 0.2 percent higher in August following, however, an upwardly revised and very sharp gain of 1.1 percent in July. Looking at the trend, the index is pointing to no more than moderate economic growth through the remainder of the year.

Weakness in building permits has been dragging on the LEI all year. Permits dropped 5.6 percent in August (data released yesterday) and make for the month's biggest negative. August's rise in unemployment claims (since reversing this month) is the second biggest negative. The biggest positive is the yield spread, which reflects the Fed's still stimulative policy, followed by the ISM's very strong new orders index posted earlier this month. A third positive is the report's credit component that continues to point to a rise in lending.

The report's coincident index, like the leading index, is also showing no more than moderate growth, at plus 0.2 percent in August following gains of only 0.1 and 0.3 percent in the two prior months. The lagging index, reflecting the economy's second-quarter snap back, is showing more strength, scoring two plus 0.3 percent gains and a 0.4 percent gain in the last three months.

This report is a reminder that housing remains, as it has been all year, a rough spot for economy.