Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The Leading Economic Index (LEI) notched its first positive monthly gain in 23 months. The overall signal is still historically consistent with recession, but the tide may be beginning to turn.LEI Increases for First Time in 23 Months
The Leading Economic Index increased 0.1% in February. That is the first time in nearly two years that the LEI has broken above water (chart). Before February, the LEI was on a 23-month losing streak, or the second longest in data going back to 1985 (chart). The longest negative streak occurred in 2007-2009 when economic activity cratered underneath the weight of the global financial crisis. The economy is much different today than it was back then, and as we wrote in last month’s write-up, the LEI’s persistent decline over the past few years amid robust economic growth has challenged its status as a recession bellwether. Nevertheless, the out-of-consensus signal underscores the fact that while economic activity has been strong, conditions have been difficult to navigate for many businesses and households.
Digging into the report’s components, average weekly hours worked by production workers in the manufacturing sector led the charge by adding 0.18 percentage points (pp) to the LEI in February (chart). The positive contribution corroborates with anecdotal evidence of producers across the country preparing for a ramp up in production once the Fed starts to ease borrowing costs and the recent firming in durable goods orders.