Insights from the Leading Economic Indicators: A Return to Positive Territory 

By at 21 February, 2020, 9:58 am

by Raymond J. Keating-

The Conference Board released its latest Leading Economic Index report on February 20, and the bottom-line takeaway was: “The LEI’s six-month growth rate has returned to positive territory, suggesting that the current economic expansion – at about 2 percent – will continue through early 2020.”

Among the positives in January were “a sharp drop in initial unemployment insurance claims, increasing housing permits, consumers’ outlook on the economy and financial indicators.” As for manufacturing, Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, observed: “While weakness in manufacturing appears to show signs of softening, the COVID-19 outbreak may impact manufacturing supply chains in the US in the coming months.”

So, this all seems to line up with other general assessments on economic growth running at a rather underwhelming 2 percent rate. However, it’s also worth highlighting a February 12 note on the economy from The Conference Board. It was pointed out that a “shift from consumption to investment is key to sustain growth.”

Unfortunately, this issue is not fully explored or explained in The Conference Board brief analysis. But it does hit on a point that I’ve been focused on when looking at recent economic data. That is, economic growth has been reliant on the consumer in recent quarters, with business investment and trade faltering. That simply is not sustainable, given that the consumer ultimately is reliant on and takes cues from business activity, namely, business investment as well as entrepreneurial activity. For good measure, in terms of new opportunities, both established and new businesses must be able to seek growth in international markets as well as at home.

Of course, all of this means that to achieve faster sustained economic growth policymakers need to be focused on reducing government barriers to and burdens on entrepreneurship, investment and trade.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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