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Leading Economic Indicators Grow at Moderate Pace

Leading Economic IndicatorsLeading U.S. economic indicators improved again in January, but weakness in homebuilding and manufacturing threaten to turn that growth around.

The Conference Board reported a 0.2 percent month-over-month increase in its Leading Economic Index (LEI), putting the measure at 121.1. The index, which measures early growth signs as a gauge of future economic developments, had increased 0.4 percent in December and 0.3 percent in November.

"The U.S. Leading Economic Index increased again in January, but its pace of growth has been moderate in recent months," said Ataman Ozyildirim, economist at the Conference Board. "While the LEI suggests a positive short-term outlook in 2015, the lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the U.S. economy."

Manufacturing growth slowed from December to January, according to an early February report from the Institute for Supply Management. Meanwhile, permits for future home construction dropped 0.7 percent month-over-month to a seasonally adjusted annual rate of 1.05 million, the Commerce Department said.

"Housing is a leading sector of the economy, so we use housing permits as one of the 10 leading indicators in the LEI," Ozyildirim said. "Housing recovery seems to have hit a soft patch in the last few months. But overall the LEI is pointing to jobs, incomes, and production activity continuing to rise in the months ahead. So, improving economic conditions ahead suggest the housing weakness we’ve seen is likely to be temporary, but the LEI only points to moderate growth so the recovery in housing is likely to be constrained as well. There are also larger issues like strict lending conditions despite low mortgage rates and the slow pace of household formation that are holding back housing despite improving business cycle conditions that the LEI is pointing to."

The leading index was the only one of three measures from the Conference Board to experience a slowdown in January. The group's gauge of current economic conditions increased 0.2 percent to 111.6, matching December's gain, while the lagging index increased 0.3 percent to 115.3, also the same as December.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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