Forward-looking economic indicators turn positive

We got a bit of good news about the economy this week, courtesy of The Conference Board’s Leading Economic Index, which tracks key economic indicators. It rose in February, a sign, the Conference Board said, that the economy is headed in the right direction.

That’s noteworthy because up until February, the index had been pointing down. In fact, February was the first time the index went up in two years.

So what’s changed?

There are a lot of factors that go into the Leading Economic Index: Stock prices, manufacturing orders, credit availability and other indicators all give us hints about future economic activity.

“So looking at them as a group gives you a much clearer picture of what’s going to happen next in the economy. If we’re going to tip into a recession, or if we are on an upward trend,” said The Conference Board’s Justyna Zabinska-LaMonica, who puts together the Index.

She says a big reason why the Index turned around last month was that the manufacturing workweek got longer. In other words, employees worked more hours.

“That means new orders coming in, and there’s a production going on. It means this production will have to leave the factories, and will be sold,” she said.

Plus, building permits increased, which is a sign that housing activity could pick up. Credit was more available, a sign that borrowers might take out more loans.

Menzie Chinn, an economics professor at the University of Wisconsin-Madison, said even if the economy slows down this year, a recession is unlikely.

“At least there’s strength in the economy, probably enough so that you’re not going to go into actual negative growth,” he said.

Chinn said that’s a pretty common view among economists right now.

Late last year, Kathy Bostjancic, chief economist at Nationwide, said she was expecting a recession. But in the time since, economic data has come in stronger than she thought.

“You know, most notably, it was the employment figures. If more people are working, that just provides a lot of total income for consumers, and then they can continue to spend,” she said. 

Thing is, Bostjancic said she still thinks a recession is possible.

That’s because there are parts of the economy that are looking more vulnerable right now, like consumer debt, for instance.

“Credit card and auto loan delinquencies are at rates that are typically consistent with early signs of a recession, or [are] recessionary, in themselves,” she said.

But Bostjancic said that’s unlikely to drag down the economy as long as the labor market stays strong.