Despite signs of contraction in just about every other piece of economic news, the index of Leading Economic Indicators (LEI) climbed for the second straight month - up 0.4 percent in January. Once again, the index was boosted by an increase in the money supply. We still expect contraction in real GDP for most of 2009.
Underpinning from Money Supply Buoys Index Yet Again
- The U.S. government has been providing liquidity by injecting tremendous amounts of cash into the financial system. The increase in the money supply was the largest positive for LEI.
- Despite recent positive readings, the overall trend for LEI is down. The coincident index, intended to describe where we are now in the economic cycle, is firmly in recession territory.
Job Market and Housing Continue to Dampen Outlook
- The recent spike in layoffs weighed on LEI; unemployment claims were the largest negative last month. The 9th straight negative month, this reflects ongoing challenges in the job market. We expect unemployment to be 9 percent by year-end.
- Challenges in housing in January resulted in a contraction in building permits - the 7th straight monthly drop for this series.
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