In August 2024, two of the AIER Business Conditions indicators rose strongly and one fell steeply. The Leading Indicator rose from 58 to 71 while the Roughly Coincident Indicator leapt from 58 to 92. The Lagging Indicator, on the other hand, fell from 33 to 25. 

Leading Indicator (71)

Across the twelve Leading Indicator constituents, eight rose, three fell, and one was unchanged in August 2024.  

The rising subindices were: 1-to-10 year US Treasury spread (29.8 percent), US New Privately Owned Housing Units Started by Structure (9.6 percent), US Initial Jobless Claims (8.8 percent), University of Michigan Consumer Expectations Index (4.8 percent), Inventory/Sales Ratio: Total Business (0.7 percent), US Leading Index Manufacturing, New Orders, Consumer Goods and Materials (0.3 percent), Conference Board US Manufacturers New Orders Nondefense Capital Good Ex Aircraft (0.1 percent), and Adjusted Retail and Food Service Sales (0.1 percent).

Those declining in August 2024 included the Conference Board US Leading Index of Stock Prices (-1.1 percent), FINRA Customer Debit Balances in Margin Accounts (-1.7 percent), and United States Heavy Truck Sales (-3.1 percent). US Average Weekly Hours All Employees Manufacturing were unchanged.

Roughly Coincident (92) and Lagging Indicators (25)

Within the Roughly Coincident Indicator five components rose and one was unchanged, the being the US Labor Force Participation Rate. 

Among the remaining constituents, the July to August 2024 increases were as follows: Conference Board Consumer Confidence Present Situation Index (1.1 percent), Industrial Production (0.3 percent), Coincident Personal Income Less Transfer Payments (0.2 percent), Coincident Manufacturing and Trade Sales (0.2 percent), and Nonfarm payrolls (0.1 percent).

One constituent of the six Lagging Indicators rose with four falling and one unchanged from July to August 2024. US Manufacturing and Trade Inventories rose 0.3 percent, while core CPI (year-over-year) remained the same at 3.2 percent. Both the Conference Board US Lagging Average Duration of Unemployment and US Commercial Paper Placed Top 30 Day Yields  declined by 1.9 percent, as did US Lagging Commercial and Industrial Loans (-0.4 percent) and the Census Bureau’s Private Construction Spending (Nonresidential) index (-0.1 percent).

In August 2024, the Leading Indicator returned to a high struck once (briefly) in April 2024, but not sustained since the late 2023 through early 2024 period. The Roughly Coincident Indicator, meanwhile, returned to an expansionary level not seen since September 2023. And the Lagging Indicator is now at its lowest level since March, resuming the largely contractionary character it has sustained since December 2023. 

AIER’s Business Conditions Monthly indicators continue to show notable fluctuations across different lag periods. The Leading Indicator has oscillated significantly from lows of 29 in October 2023 to 71 this month, suggesting that conditions for future economic growth have improved after a volatile period. The Roughly Coincident Indicator has shown remarkable strength in recent months, with the 92 reading in August 2024 signaling a robust economic environment at present

In contrast, the decline in the Lagging Indicator, which has deteriorated sharply from relatively neutral levels earlier in the year (50 in February 2024) to 25 implies that although current and leading measures of economic health are showing strength, contractionary forces may still be building. The ongoing mixed signals may suggest that while economic momentum has picked up recently, vulnerabilities nevertheless remain.

Discussion

In recent months the US labor market has sent mixed signals, leading to a notable decline in consumer confidence. The Conference Board’s Consumer Confidence Index fell sharply in September 2023, dropping from 105.6 to 98.7, marking the biggest decline in three years. This drop, driven by concerns over the labor market and broader economic conditions, underscores growing uncertainty among consumers. Notably, the labor market differential — tracking the difference between those who view jobs as plentiful versus hard to find — continued to shrink, suggesting higher unemployment in the near future. This drop in confidence was most pronounced among middle-aged consumers and those earning less than $50,000 annually. Despite these concerns, slight improvements in plans to purchase homes and cars reflect the impact of lower interest rates, as the Federal Reserve began cutting rates to counteract economic sluggishness.

Labor market deterioration has been at the core of the Fed’s recent decision to implement a jumbo rate cut. Although the broader economy is experiencing challenges, there remains an underlying optimism that this intervention will stabilize conditions. However, several economic indicators point to rising risks. Although jobless claims have remained historically low in what usually signals a strong labor market, it is misleading. Many unemployed workers have exhausted their benefits, are taking multiple part-time jobs to make ends meet, or re-entering the labor force but not qualifying for benefits. The employment-to-population ratio for prime-aged workers remains elevated, though largely due to the rise of part-time work. A decomposition of employment flows shows that native-born, full-time workers are experiencing significant job losses, similar to patterns seen in previous recessions.

Moreover, nonfarm payrolls continue to appear resilient, but this too is misleading. The number of multiple-job holders and inaccuracies in the Bureau of Labor Statistics’ birth-death model for tracking business openings and closures obscure the true state of the job market. Analysts expect downward revisions in payroll figures, particularly for 2024. In contrast to Federal Reserve Chair Jerome Powell’s view that the labor market remains “solid,” these factors indicate growing weakness.

The broader economic environment is further complicated by shifts in Treasury yields. The September jobs report exceeded expectations, leading to speculation about how much more the Fed needs to cut rates, with Treasury yields rising across the curve. A potential “no-landing” scenario — where the economy does not slow down despite interest rate cuts — has sparked concerns about a prolonged boom that could eventually trigger a more severe bust. Investor sentiment has been caught between expectations of a prolonged expansion, rising job openings, and strong wage growth, with an increasing risk of overheating.

Inflationary pressures remain a key concern, with some sectors indicating rising prices while others are cooling. Notably, the New York Fed Services prices received index increased, and several manufacturing indices showed rising output prices. However, the September ISM Manufacturing PMI indicated contraction in prices paid, signaling mixed inflationary signals across sectors. Investors are bracing for volatility in upcoming CPI reports, which will play a crucial role in determining the Fed’s next steps and the direction of Treasury yields and stock market performance.

Recent stronger-than-expected economic data, including solid retail spending in September, has bolstered confidence that the US economy is performing well. The Atlanta Fed’s GDP nowcast estimates third-quarter growth at 3.4 percent, significantly outpacing most analysts’ predictions of around 2 percent for potential GDP growth. But while hard data points to economic strength, anecdotal evidence paints a different picture. The Beige Book, which Fed Chair Jerome Powell closely monitors, is expected to describe economic growth as “modest” — an improvement from the previous report but still falling short of the Atlanta Fed’s optimism.

Sectors like manufacturing and housing, typically leading indicators of economic cycles, remain weak, with hurricanes in September and early October exacerbating seasonal issues. The Richmond and Kansas City Fed districts are likely to reflect further declines in these areas. While existing home sales may show a slight uptick, they remain historically low. On the other hand, despite ongoing chaos in the Middle East oil prices are continuing to fall; a factor underpinning continued growth. 

A clear sign of the profound uncertainty in global markets is gold’s latest record high ($2720/oz) despite the typically inverse relationship with a strengthening dollar and rising Treasury yields. Safe-haven demand has surged amid Middle East tensions and concerns about rising US public debt. Although some negative economic trends persist, the possibility of achieving a soft landing appears increasingly viable. Once the November 4th election passes, the political uncertainty currently clouding the broader economic landscape is likely to dissipate, offering a clearer view of the economy’s underlying trajectory.

LEADING INDICATORS

ROUGHLY COINCIDENT INDICATORS

LAGGING INDICATORS

CAPITAL MARKET PERFORMANCE

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