Leading Indicators May 2010

Released on 6/17/2010 10:00:00 AM For May, 2010 Prior Consensus Consensus Range Actual Leading Indicators - M/M change -0.1 % 0.6 % 0.1 % to 0.8 % 0.4 %

Highlights The headline for the LEI looks beefy, plus 0.4 percent, but the gain is centered where it has been this whole recovery: in the yield curve where zero policy is making for a very wide spread between short and long rates. The second biggest plus is in money supply which is a very iffy component distorted by uncertain measurement and subject to wide swings. The most substantial gain in May is the factory workweek, which based on yesterday's industrial production report is likely to continue to rise. Negatives for May are stock prices, where the outlook for June is still uncertain, and building permits where post-stimulus contraction is a risk. Initial unemployment claims are a marginal negative for May but, based on this morning's claims report, look to be a less marginal negative in June. A clear plus in today's report is the coincident index which is up 0.4 percent for a second straight month in what points to a formal recognition that the recession is over. This is perhaps a bit ironic given what appears to be an uncertain outlook for the leading indicators.

Market Consensus Before Announcement The Conference Board's index of leading indicators in April edged down 0.1 percent, following a 1.3 percent surge the month before. The latest number primarily reflected a decline in building permits and shortened delivery time. In contrast, the index of coincident indicators rose 0.3 percent in April, following a 0.1 percent boost the month before. This index has been on an upward trend since July 2009. We should see a rebound in the May LEI despite the downward tug from a drop in stock prices and building permits. Positives are likely in the factory workweek, vendor performance, nondefense capital goods orders, interest rate spread, and consumer expectations.

Definition A composite index of ten economic indicators that should lead overall economic activity. This indicator was initially compiled by the Commerce Department but is now compiled and produced by The Conference Board. It has been revised many times in the past 30 years - particularly when it has not done a good job of predicting turning points.  Why Investors Care