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The Conference Board Leading Economic Index® (LEI) for the U.S. Fell in May Again

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News provided by

The Conference Board

Jun 17, 2022, 10:00 ET

NEW YORK, June 17, 2022 /PRNewswire/ — The Conference Board Leading Economic Index® (LEI) for the U.S. decreased by 0.4 percent in May 2022 to 118.3 (2016 = 100), following a 0.4 percent decline in April 2022. The LEI is now down 0.4 percent over the six-month period from November 2021 to May 2022.

“The US LEI fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term—and tighter monetary policy is poised to dampen economic growth even further.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. increased by 0.2 percent in May 2022 to 108.8 (2016 = 100), following a 0.5 percent increase in April 2022. The CEI is up 1.3 percent over the six-month period from November 2021 to May 2022.

The Conference Board Lagging Economic Index® (LAG) for the U.S. increased by 0.8 percent in May 2022 to 112.9 (2016 = 100), following a 0.4 percent increase in April 2022. The LAG is up 3.7 percent over the six-month period from November 2021 to May 2022.

Summary Table of Composite Economic Indexes

2022

6-month

Mar

Apr

May

Nov to
May

Leading Index

119.3

r

118.8

r

118.3

p

  Percent Change

-0.1

r

-0.4

r

-0.4

p

-0.4

  Diffusion

50

20

55

40

Coincident Index

108.1

r

108.6

r

108.8

p

  Percent Change

0.0

r

0.5

r

0.2

p

1.3

  Diffusion

50

100

75

75

Lagging Index

111.6

r

112.0

r

112.9

p

  Percent Change

1.0

r

0.4

0.8

p

3.7

  Diffusion

86

57.1

71.4

85.7

p  Preliminary     r  Revised

Indexes equal 100 in 2016

Source:  The Conference Board

The next release is scheduled for Thursday, July 21, 2022, at 10 A.M. ET.

About The Conference Board Leading Economic Index® (LEI) for the U.S.: The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle.

The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.

To access data, please visit: https://data-central.conference-board.org/

About The Conference Board 
The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org • Learn more about our mission and becoming a member

SOURCE The Conference Board

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Interest rates hit 8-year high while Mortgage applications drop to 4-year low

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According to the data released from the Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending November 2, 2018, the mortgage applications reduced 4.0 percent from a previous week.

The Market Composite Index, which is a gauge of mortgage loan application volume, reduced 4.0 percent on a seasonally regulated basis from one week earlier to the lowest point since December 2014. When checked on a basis not adjusted, the Index diminished two percent in comparison with the last week. On the other hand, the Refinance Index declined three percent from the preceding week. The seasonally adjusted Purchase Index reduced five percent from one week previously to the lowest point since November 2016. Based on a comparison with the previous week, the unadjusted Purchase Index cut one percent and was 0.2 percent lesser than the same week last year.

According to Joel Kan, MBA’s associate vice president of economic and industry forecasts, he said there was a slight increase of rates in the previous week, as several job market indicators revealed a quickening in wage growth and leap in job gains in October. He also confirmed that the MBA’s survey 30-year fixed rate placed at 5.15 percent was the peak since April 2010. The application activity dwindled over the week for the refinance and purchase applications, as the entire market index came down to its lowest point since November 2016, but lingered only somewhat beneath the same week a year ago. There is no doubt that the housing inventory shortages have continuously had its effects on the potential homebuyers this fall.

On the other hand, the activity of the refinance mortgage share has reduced to 39.1 percent of the entire applications from 39.4 percent the last week. The share of activity of the adjustable-rate mortgage (ARM) boosted to 7.8 percent of overall applications.

In the previous week, the FHA share of the overall applications diminished to 10.1 percent from 10.3 percent. However, the VA share of the entire applications improved from 9.8 percent to 10.1 percent in the previous week while the USDA share of the total applications maintained its position at 0.7 percent in the last week.

There is an increase in the average contract interest rate for 30-year fixed-rate mortgages with compliant loan balances of ($453,100 or less) from 5.11 percent to 5.15 percent, with an increment of points from 0.50 to 0.51, (not excluding the origination charges) for the 80 percent loan-to-value ratio (LTV) loans. There is an increase in the effective rate from the previous week.

There is an increase in the average contract interest rate for 30-year fixed-rate mortgages with more significant loan balances ranging above $453,100 from 4.94 percent to 4.97 percent, as there is a reduction in the points from 0.28 to 0.27 (in addition to the origination fee) for 80 percent LTV loans. There is an increment of the effective rate from the preceding week.

On the other hand, the average contract interest rate for 30-year fixed-rate mortgages supported by the FHA was boosted from 5.08 percent to 5.15 percent, as points rose from 0.62 to 0.64 (plus with the origination fee) for 80 percent LTV loans. It is on record that the effective rate grew from the previous week.

However, the average contract interest rate for 15-year fixed-rate mortgages remained stable at 4.55 percent, as well as the points at 0.51 (in addition to the origination fee) for 80 percent LTV loans. Like other factors, the effective rate also swelled from the preceding week.

There is an increase of the average contract interest rate for 5/1 ARMs from 4.33 percent to 4.36 percent, and the points reducing from 0.42 to 0.35 plus the origination fee for 80 percent loan-to-value (LTV) loans. The effective rate has not been altered from the previous week.

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Australia’s key rate held at 1.50 percent as the economy has faster growth and less jobless

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The economy of Australia is performing incredibly well according to statements by Reserve Bank of Australia Philip Lowe, Governor Monetary Policy Decision.  The Gross Domestic Product has been increased by 3.4 per cent while the unemployment rate has reduced to 5 per cent over the past year; this is the lowest point in six years. However, it is important to note that the forecasts for economic growth in 2018 and 2019 have been modified. The central outline is for the growth of GDP to be at an average of 3½ per cent over these two years before it reduces in 2020 as a result of the slower growth in the exports of resources.

The continuous expansion of the global economy coupled with the fact that most advanced economies are increasing at an above-trend rate and having low unemployment rates. The pace of growth in China has diminished a little, as the government is introducing favorable policies and observing the hazards in the financial sector. The inflation is still low across the globe, though its rate has increased because of the higher oil prices and an improvement in the growth of wages. There is an expected rise in inflation rate due to the stiffening labor markets, in the United States, and the considerable fiscal stimulus. One continuous doubt concerning the global outlook is as a result of the international trade policy direction in the United States.

There has been an expansion in the financial conditions in the advanced economies, but this has been stiffened in recent times. The equity prices have reduced while returns on government bonds in some economies have improved, though remain low. The United States dollar has considerably appreciated this year. On the other hand, the money-market interest rates have reduced in recent times in Australia despite recording an increase during the year. The standard variable mortgage rates are somewhat higher than a few months ago, while the rates charged to individuals borrowing for the first time for housing are considerably lower than for those with unpaid loans.

There is an aura of positivity surrounding business conditions, and there is an expectation of increase for the non-mining business investment. The increased levels of public infrastructure investment are also offering support for the economy, as well as the improvement in resource exports. However, a significant source of doubt is the household consumption outlook. The household income has remained low with stunted growth, coupled with higher debt levels and the prices of some assets have reduced drastically. This has resulted in severe conditions in various facets of the farm sector.

The terms of trade of Australia has improved over the last few years, and have remained stronger than anticipated. There is no doubt that it has helped in the advancement of the national income. Though there is an expectation that the terms of trade will decrease as time goes by, there is a probability that the terms of trade in Australia will remain at a high level for some time. The Australian dollar is still within the range it has maintained in the last two years on a trade-weighted basis, though the Australian dollar is presently in the lower region of the scale.

The labour market’s outlook remains optimistic as the economic growth is above the trend; an additional reduction in the unemployment rate is predicted to be around 4¾ per cent in 2020. On the other hand, the vacancy rate remains high, and there are accounts of skills shortages in some places. Despite picking up a little, the growth of the wages remains low. There is an expectation that economic improvement should result in an extra lift in wages growth over time; it is anticipated to be a slow process.

The inflation rate has remained steady and low. CPI inflation was 1.9 per cent and, in basic terms, the inflation rate was 1¾ per cent over the past year. These consequences tally with the expectations of the Bank and were grossly manipulated by declines in some administered prices as a result of the altercations in the government policies. There is anticipation for inflation to pick up over the next few years, and the rise is likely to be slow and steady. The central situation is for the inflation rate to be 2¼ per cent in 2019 and a bit greater in the coming year.

The conditions in the Sydney and Melbourne housing markets have continuously enjoyed peace, and the national measures of rent inflation have remained low. The growth in credit stretched to the owner-occupiers has alleviated but maintained its robust nature, while the demand by investors has reduced significantly as the housing market dynamics have changed. There have been stricter credit conditions in recent times, despite the low status of the mortgage rates, and in the face of intense competition for borrowers of high credit quality.

The low level of interest rates continuously supports the Australian economy. Moreover, there is an expectation of the further progress in unemployment reduction and getting the inflation return to target, though it is considered to be a slow process. Fortified with the available data, the Board concluded that leaving the monetary policy stance stable at this meeting would agree with the viable growth in the economy and aim to achieve the inflation target over time.

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Bank of Canada Keeps Benchmark Rate Unchanged

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The interest rate was maintained at 1.5% by the Central Bank, an indication that the NAFTA talks could influence the pace of increases in the future. On Wednesday, the Bank of Canada kept its standard interest rate stable at 1.5% as there is a possibility that the North American Free Trade Agreement could have a significant impact on the increases of future rates.

In a short policy statement, the central bank opined that higher interest rates would be required to ensure inflation is kept close to its 2% target. The central bank also confirmed that it would continue to engage a systematic style to increase rates, backed with incoming data and the reaction of the economy to higher rates.

In its policy statement, the bank also confirmed that it is also ensuring the monitoring of the NAFTA discussions and other trade policy expansions, as well as their influence on the outlook of the inflation. However, the central bank of Canada fixes interest rates to maintain and achieve 2% inflation over the long term.

In the words of Josh Nye, an economist with the Royal Bank, he said that the statement strengthened the expectations of analyst that the Bank of Canada will increase the key interest by a quarter-percentage point at a policy declaration in the latter part of October. He also said that in the case of an unforeseen weakening in business reaction or the disbanding of NAFTA, the increase in the rate by October remains unchanged.

However, the interest-rate decision was released on Wednesday, the same day that United States and Canada negotiators were supposed to discuss the NAFTA negotiations in Washington after they avoided a deadline imposed by the United States on Friday. During the early part of the week, Mexico and the United States of America agreed on their trilateral deal, and this has placed Canada under severe pressure to conform to the conditions given by the United States or be eliminated from the accord.

According to a study by the Bank for International Settlements, NAFTA is considered to be important for Canada, as a significant part of its exports are shipped to the United States, Canada will be the biggest loser if the deal is suspended. According to the data offered by Statistics Canada on Wednesday, the exports of Canada increased in July thereby reducing the trade deficit of the nation with the other countries of the world.

In a statement released by the central bank on Wednesday, the Bank of Canada has expressed concerns about the aftermath of the trade deal’s future for more than twelve months. It has been trying to increase interest rates after maintaining them at super-low levels in a bid to ensure the recovery of the economy from the financial disaster and the 2014 reduction in the prices of the global commodity. The business investment in Canada has been affected by the doubt surrounding the trade policy. The central bank also confirmed that increased trade tensions have posed a threat to the global outlook and playing a role in the reduction of some commodity prices when the economy of the United States is performing excellently.

The Bank of Canada asserted that the headline inflation at a rate higher than the anticipated rate at 3% in response to the maintaining the key rate on hold. The central bank suggested that there is an expectation of the inflation moving to its 2% target in the early part of 2019, as the impact of previous increases in the prices of gas disappears. It has also been observed that the instruments of fundamental and core inflation are unchanged around 2%.

According to the Central Bank Governor, Stephen Poloz, he confirmed that the economy of Canada is progressing according to the new prediction which was released in July. Nevertheless, the economic growth is expected to experience slowness in the next few months on additional variations in exports and energy production. The deputy governor of the central bank, Carolyn Wilkins is expected to deliver a speech on Thursday which is anticipated to grow on the outlook of Canada.

The Bank of Canada said the business investment and exports have been increasing for some segments irrespective of the risks involved in trade policy. It is noteworthy that the housing activity is stable after the introduction of strict mortgage-financing regulations and increased interest rates.

According to a Wall Street Journal survey of economists, the Bank of Canada was expected to keep interest rates on hold, as they opined that the doubt surrounding NAFTA and the belief that rate increases should be taken slowly would ensure the shelving of the central bank until October. However, the next arranged decision will be provided on October 24.

Since the mid-2017, the interest rates have been increased four times by the Bank of Canada, with the most recent one in July.

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Turkey’s Lira: words not sufficient to Raise Interest Rates

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The Turkish lira may become viable after the central bank gave signs higher interest rates were underway, but some investors are concerned that any effective relief will require an extreme hike that it is sure to deliver.

Further, it is on record that even after 700 basis points of monetary pull back since December; consumer-price growth has increased for five months, reducing the inflation adjusted policy rate to about 1 percent. If this situation is to be the same in June, the central bank would have to raise costs to borrowers by another 400 basis points to stabilize the lira.

Around the world, Central banks have been forced into action by emerging-market instabilities. A significant example is Argentina hiking rates by 1,500 basis points last week; second is Turkey’s 10-year government bonds yield which has fallen for a second day, dropping to 20.91 percent and continuing its decline this week to 85 basis points.

Nomura International Plc has proffered a solution requiring Turkey to raise the one-week repo rate by at least 575 basis points to 23.5 percent; however, the company is unsure policymakers will be prepared to deliver such aggressive tightening.

Just as Guillaume Tresca, a strategist at Credit Agricole SA in Paris fears that increased rates are very imminent as he tips the lira lesser to 8.30 per dollar in December. He says: “Market expectations are now running high for a bold rate hike. In our view, they can only disappoint markets, very well the lira is weakening to 8.30 per dollar by December.” Guillaume lastly noted that the current stance by the central bank to this turmoil shows they are running out of ammunition.

Recently the lira slipped 0.3 percent to 6.6578 per dollar as of 10:29 a.m. in Istanbul on Tuesday. The currency went down as much as 2.6 percent on Monday before reducing the decline to a loss of 1.5 percent. Based on relevant speculations that hikes are looming, the central bank is to hold its next policy meeting on Sept. 13 to decide necessary actions to support price stability.

Further, It can be rightly inferred that with the amount of pressure on Recep Tayyip Erdogan the President to keep the growth moving along, it is not a surprise that investor skepticism over the acceptability of any policy action is running high. By allowing inflation go into the double digits for most of the past two years and relying on controlling liquidity management instead of immediate hikes the central bank has remained firmly in deficit.

Inan Demir, an economist at Nomura, says he is unsure of what to expect however he has subjected fate to Monday’s statement, he say: “I’m not very confident, to say the least, If Monday’s statement is a signal of unconventional policies, the market will be underwhelmed by the policy response.”

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“The time for rates hike not right,” Bullard to Federal Reserve Bank.

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The Federal Reserve Bank of St. Louis President James Bullard admonished management members to halt raising rates again, however, Bullard appeared resolved that a move higher this month is pretty much a done deal.

The bank president while speaking in an interview on Fox Business Network on Tuesday complimented the economy saying: “we’ve got a pretty good policy right now and we should stay where we are and see how the data come in.”

Furthermore, the interest-rate setting Federal Open Market Committee is expected to sit later this month to increase the current rate to their target rate, whose current threshold is 1.75% and 2%. However, Mr. Bullard can do only little, as he is currently not a voting member of the committee.

Also, the president while speaking with Fox Business Network reiterated his view on rate increases; unluckily, his colleagues share a dissenting view about the looming September rate rise, in Bullard’s own words he says: “markets are putting a high probability on it. And if you talk to my co-workers, most of them seem to be speculating a high probability as well.”

The president of the Federal Reserve Bank also noted that the bond market is currently in good shape because the difference between short and long term dated yields has diminished considerably. Thus the favorable condition in the bond market is unsupported by raising rates at the moment. That is because more rate hikes could cause that relationship to turn negative, and if it did, that is a strong signal a recession may follow.

Putting in Bullard’s own words, he says: “We’re in good shape, and I think what we could do is take the signs from financial markets that are telling us that we’re almost where we need to be right now, for instance the yield curve, is very flat. I’d rather not see an inverted yield curve in the U.S. That’s usually a signal of a slowdown ahead.”

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Rising ECB Rates? No problem for EU Finance Ministers!

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Europe’s finance ministers need not lose a sleep over the fact that European Central Bank’s exit after years of loose monetary strategy will provoke financial upheavals, an upcoming study says.

According to Daniel Gros the director of the Brussels-based Center for European Policy Studies, on his opinion to be presented at a meeting with central bankers and finance chiefs in Vienna on Friday, he rightly opt that “Higher interest rates do not need to be the forerunners of wider financial-market instability.”

A note from the nation’s government informs us that Austria, which currently holds the seat of Presidency in the EU, will ask delegates to consider rates normalization first, and lookout for any intervening strain it might cost the market and how to cub it.

However for Gros, the stop of market ad valorem and the ECB’s plan to raise rates very gradually, maybe starting in late 2019, will have both positive and some negative effects. The rise borrowing costs can reduce the central banks’ profits, which will eventually make their way into the government funds, but also prop up commercial banks’ balance sheets, which will be to support economic growth.

In his own words he said “Policy normalizing should not create financing difficulties for most government or major financial institutions, There is no reason to fear that policy normalization will lead to a sudden return of risk aversion and risk premia. Quite the contrary, a continuation of the ‘low for long’ scenario over time, might, lead to a build-up of vulnerabilities.”

Thus for Gros, putting off rate hikes for too long could lead to possible market problems down the line.

It is the earnest view that the ECB’s normalization is susceptible to promote financial stability at the global level even where some of Europe’s neighbors such as Turkey and Ukraine are vulnerable because European banks have little exposure there and any impact will likely be limited, Gros records same fate for euro banks in Asia as credit challenge loom could be a perilous factor.

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Canada’s Hot Economy Tests Canadian Banker Poloz’s Patience With Canadian Rates

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With the pushing of protectionism from President Trump, the biggest obstacle to the economic expansion of Canada is within its borders. Local news emanating from Canada confirmed that the economy of Canada is closer to overheating than stumbling on the back of trade uncertainty, a situation that has compelled the Bank of Canada to introduce higher interest rates.

There is an anticipated report from Statistics Canada that the economy increased to an annual three percent rate or more in the second quarter, a feat considered as the fastest stride in a single year. It is believed to serve as a balance for the weaker start to 2018 and create more space for expansion for a profit of a rate higher than two percent for the entire year after 2017 strong 3.1 percent advance.

This huge demand is unraveling the little capacity possessed by the economy. The companies in the country are faced with a shortage of labor and production constrictions, as the inflation rate of three percent is the maximum when the Group of Seven is studied.

According to the Chief Financial Officer of the Royal Bank of Canada, Rod Bolger in a telephone interview in the previous week opined that trade uncertainty is on the mind of everybody, but there is a strong demand. The challenge faced by several clients of the Royal Bank of Canada is the sourcing of labor as it is hard to get skilled professionals and the upward pressure on labor rates cannot be ignored.

However, the tightening signs are visible as the rate of unemployment is presently at four-decade lows, improvement of pay raises, and the increase in the number of job vacancies by different companies. According to the information shown by the job listings, various businesses are offering thousands of dollars to hairstylists and mechanics in the form of signing bonuses.

Over the years, Canada has exclusively depended on the immigrants to develop its working population as its entire population advance in age. Statistics Canada released a report that in the last one year, the population of landed immigrants in the labor force was increased by 164,000 and down 72,000 for individuals that were born in Canada.

According to the economists at the Bank of Canada, the economy of the nation is expected to grow more than two percent before the emergence of inflation. This is the main reason why financial markets are not focused on the swiftness of the expansion but the pace of the rising rates and its amount. In the words of Jean-Francois Perrault, the Chief Economist at the Bank of Nova Scotia, he said that every company is complaining about the shortage in labor and confirmed that the issue of labor is the most complicated problem faced by several businesses at the moment.

In a bid to ensure a breakthrough on trade would provide relief for parts of the capacity restraints, it has been observed that brands are incapacitated in the aspect of demographics, but they can resolve labor shortage issues by purchasing more equipment and embracing new technologies. However, more trade certainty should reinforce their belief and enthusiasm to invest which will encourage them to offer increased wages that will attract more individuals into the workforce.

In the real sense, there is least expectation of investment revitalization in Canada that could overturn the entire growth trend. The reason is that businesses are careful of overstretching themselves in the Canadian economy that is presently experiencing a slowdown.

The desire of the Canadian Prime Minister, Justin Trudeau to increase immigration will offer relief significantly, but this issue will be a controversial topic in the political sphere. Research has shown that the influx of more immigrants is not the perfect solution as they may not be as productive as the persons they replaced. These factors could leave companies in a tight corner in the future as they may struggle to keep up with demand thereby stimulating inflationary pressures.

Investors see close odds that the Bank of Canada will increase borrowing costs for the fifth time by October, since the hiking cycle started in July 2017 with several increments and two additional increases by the middle of 2019. The models of the central bank stayed behind the curve on regularizing borrowing expenses from traditionally low levels, but the Stephen Poloz, the Governor of Bank of Canada, has believed that there is still some floppiness in the labor force, especially among the women and the youth, which could be attracted with lesser rates.

Economists do not entirely believe in the assertion that supply is the most significant obstacle in Canada, one of the advanced economies in the world. They opined that the companies could be making a capacity investment because demand is suppressed by other factors such as a debt extension or imbalanced wealth distribution. However, an increase in the rates may not be the perfect solution if demand is the cause of the issue.

With the availability of few options for the Bank of Canada, as its primary assignment is to confront inflation, and not focus its energy on structural challenges like production constraints and income inequality. The patience of Poloz is being tried with the inflation at a full percentage point beyond the two percent target.

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