When all you read is gloom, turn here for a much different perspective.

Monday, September 21, 2009

Leading Indicators Now Up for 5 Straight Months

The Conference Board's index of U.S. leading economic indicators rose for the fifth straight month in August. The streak represents the longest string of LEI gains in five years. The data further bolsters our view that growth likely began in June and will continue to strengthen through the end of the year. The index was up 0.6 percent in August after a jump of 0.9 percent in July.

Stock price gains, consumer confidence, and homebuilding increases helped push the leading index higher as more and more economists are beginning to finally share our view of much better than lackluster results in the second half.

"This is another signal that economic growth is turning sharply positive this quarter," said Dean Maki, chief U.S. economist at Barclays Capital. "All of the elements for a robust recovery are falling into place. As we look ahead, job losses will end and the unemployment rate will stop rising..."


  1. GNE,

    The market seemed concerned about the drop in existing home sales today. Are we headed for more trouble with the expectation that foreclosures will spike up, driving down home prices and thus the housing recovery? I've seen some estimates that millions of homes are coming up for foreclosure as adjustable rates change in the next few months.

  2. Anonymous,

    What many economists fail to talk about in the adjustable rate change discussion is that currently any mortgage that adjusts is likely going to be good news for the borrower. 1-3-5 year ARMs -- if they are going to adjust this month or anytime soon -- will almost invariably adjust to a monthly payment that is LOWER!

    So no, I don't see a new wave of foreclosures driven by a wave of adjustables. In fact I see just the opposite.

    Thanks again for reading and your questions!


  3. Isn't the concern that these loans had very low "teaser" rates or required only interest payments and once they change the monthly payments will certainly go up substantially (I have a few friends who have these loans) and the homeowners will not be able to convert them to low fixed rates because the home values have plummeted.

  4. Yes, indeed those notes had "teaser" rates, and then adjustment terms associated with "an index plus a margin."

    But what has happened in the last year is that the indexes have fallen to almost zero. (from a index of at least 4 or 5%).

    For instance. Three years ago someone took out an 3 year ARM at a teaser rate of 4%. If they looked at the 6-month LIBOR index at the time they it was at about 5%. They margin on their note adjust was another 2.5%. So back then if they'd see a convert UP to 7.5% And in fact many folks 2-3 years ago saw that happen and the wave of foreclosures started...

    But look at that note today an the 6-month LIBOR index is at 0.25% (not 5%). So folks who have that type of note today see their new rate adjust down! In the example above that note adjusts down to 2.5% instead of 4%.

    See my earlier post on a reader who just found herself in just this situation. (And I am quite sure that contrary to the gloomsters, this is what really is now happening with adjustables) and why the fed will keep rates lowered for an extended time. (Til the wave of adjustables passes).

    Why Some Homeowners Are Cheering The Libor.


  5. GNE,

    Don't the disappointing new homes sales and durable goods numbers suggest that the recovery will be bumpy at best and could fall back to recession?

  6. Anonymous,

    No I don't read those results that way. The trending is now all in the right direction, with interest rates low for an extended period, consumer confidence continuing to rise, and auto manufacturers no longer in the abyss, the residential housing market and durable goods trends will be quite strong for some time to come.


  7. GNE,

    Thanks for the response on durable goods. I looked at one of your recommeded blogs, Postcards from Capetown, where the featured blogger predicts that there will be a major market correction- possibly down to 8000- and that we are vulnerable for a W type of recovery. Do you agree?

  8. Anonymous,

    Indeed Prieur's blog is know for presenting tons of data. I enjoy reading it. We seldom agree on what the data means. One big element missing from their analysis is the effect of emotion on the market. I see positive emotion building and don't see anything to stop that. Absent a surprise war or some unexpected attack, I don't expect a general downturn in emotion anytime soon. Stimulus dollars are just now coming into play, people are finally finding new jobs, and consumer confidence is building. Those fundamental physcological aspects will continue to drive a more positive outlook for the US economy -- likely well into 2010.



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