The index of Leading Economic Indicators (LEI) climbed 0.3 percent in December, but it was a head-fake: the index was boosted higher by an outsized contribution from an increase in the money supply. Our forecast for continued economic contraction in the months ahead has not changed.

Increase in the Money Supply Buoys Index

* The U.S. government is pulling out all the stops to provide liquidity by injecting a tremendous amount of cash into the financial system. The increase in the money supply was the largest on record, even surpassing the previous record when the government rushed to provide cash in the wake of the September 11th attacks in 2001.