Leading Economic Indicators Distorted By Housing Permit Swings

Swings in housing permits have been distorting recent LEI readings including for July, down 0.2 percent vs gains of 0.6 percent in the two prior months. Permits, which fell 16 percent in Tuesday's housing starts report, more than offset what are a run of mostly neutral readings among other components. The strongest component, as it usually is, is the rate spread which reflects the Fed's stimulative policy. Also pointing to strength are initial jobless claims, which are at rock bottom lows, and the report's credit index which points to a rise ahead for lending.

Putting aside the pluses and especially the rate spread, however, points to a mostly flat outlook for the economy six months from now. Other readings include another modest reading for the coincident index, at plus 0.2 percent which points to modest ongoing growth, and a 0.3 percent rise for the lagging index which, following a 0.7 percent in the prior month, points to further upward revisions for first-quarter GDP.

Recent History Of This Indicator:
The index of leading economic indicators has been getting a strong boost from housing permits where an expected dip for July, however, is holding down forecasts. The LEI is expected to take a breather in July, up a moderate 0.2 percent.