Capital markets perspective: Status quo — for now

Capital markets perspective: Status quo — for now


On Friday, the Conference Board released its monthly update of its Index of Leading Economic Indicators (or “LEIs”), which provides an early indication of where the economy is heading in the near term.1 For the better part of a year, the Conference Board’s model seemed to indicate that a recession was lurking. But recent improvements in the six-month trend of some of its underlying line-items has influenced the outlook: While the Index’s six-month growth rate remained firmly negative, the LEI doesn’t currently signal a recession.

In the past six months, there has been modest improvements in data surrounding items such as credit conditions, manufacturing orders, and hours worked – though economists could legitimately debate whether these improvements are significant and sustainable.

Last week’s other data were again somewhat mixed: The flash Purchasing Managers Indices from S&P Global were surprisingly strong, suggesting that both manufacturing and services are expanding again even if the recent “revival in manufacturing is losing some momentum.”2 The Federal Reserve’s industrial production and capacity utilization report left the same strong-ish impression, driven by a curious spike in consumer goods manufacturing: The 1.3% boost in that segment’s output runs contrary to the consumer goods disinflation that’s become obvious in other economic releases.3

Meanwhile, on the other side of the ledger, the New York Fed’s Empire State manufacturing report for June was once again less-than-inspiring, with manufacturing activity in the region continuing to contract.4 Likewise, the Census Bureau’s retail sales report for May, which came in just above flat (and was actually negative if you exclude the line item that captures auto sales). Even more concerning, April’s previously flat number was revised significantly lower and now suggests sales at the retail level contracted by -0.2% in April.

Last week’s release of the National Association of Homebuilder’s sentiment survey was lower than expected, with the number of people visiting new developments hitting lows reached only twice during the worst of the COVID shut-downs.5 Housing starts and permits are threatening to do the same, and builders are enticing buyers with aggressive incentives, something made clear during the decidedly mixed earnings reports and forward guidance from two national-scale builders last week.6 Meanwhile, would-be buyers of existing homes are still being sidelined by record-high prices and nosebleed mortgage rates. According to the National Association of Realtors, “the mortgage payment for a typical home today is more than double that of homes purchased before 2020.”7

It will be tough for the US economy to reaccelerate without a renewal of strength in consumer demand, and a return to health for the housing market would be a key signal that that might be occurring. But last week’s data doesn’t yet support either conclusion, so we’re left with an economy that seems to be missing only a negative turn in employment data before we should start worrying about recession again.

What to watch this week

This week will bring two separate reads on consumer attitudes, the Conference Board’s consumer confidence release on Tuesday and the University of Michigan’s final June sentiment reading on Friday. These reports have begun to suggest that consumer concerns are moving up-market.

Watch also for a widening of the gap between those consumers who view jobs as “plentiful” versus those who find them “hard to get,” which will be detailed in Tuesday’s report from the Conference Board. Tuesday’s Conference Board release has the neat feature of including data for both.

Housing, too, is becoming more and more central to the economic narrative. Last week’s data wasn’t exactly encouraging, and this week’s data on home prices – due out Tuesday – isn’t likely to suggest much relief for buyers. Look for similar weakness in pending home sales numbers, expected Thursday. Any evidence to the contrary would be welcome indeed.

On the productive side of the economy, we’ll get several more regional Fed manufacturing reports (Dallas on Monday, Richmond on Tuesday, and Kansas City on Thursday), as well as durable goods orders on Thursday. These and other manufacturing-related reports have been sending mixed signals of late, with the consistent weakness of the regional Feds and a deeply depressed MNI/Chicago PMI (update due Friday,) contrasting sharply with last week’s somewhat stronger-than-expected flash PMIs.

In terms of the broader economy, Tuesday’s update of the Chicago Fed National Activity Indicator (“CFNAI”) will provide a nice cross-check of last week’s LEI. The CFNAI is broader in scope than the LEI (and carries a more academic feel) but attempts to do essentially the same thing: Roll up a group of existing economic indicators into a batch of data designed to predict where the economy might move from here.

Also of interest will be Friday’s income and outlays report. It’s always interesting to see detail surrounding where and how much Americans are earning and spending, but the real reason to read this particular report is that it also includes so-called “PCE prices” – the Fed’s preferred measure of inflation. While it’s beginning to look like inflation is fading away as the most important indicator in the economic universe, an unexpected result would capture the Fed’s attention in a way that the more popular CPI and PPI releases simply can’t.

Finally, Thursday will bring the third and final update of second quarter gross domestic product (or “GDP.”) You might recall that the Bureau of Economic Analysis routinely provides three guesses each quarter, and the second estimate released only a few weeks ago was revised materially lower when consumer demand was found to be lower than originally estimated. It’s pretty rare for GDP data to move markets, but a similar revision as a result of weak demand could make Thursday’s GDP release uniquely relevant for markets.

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1 The Conference Board, “US Leading Indicators,” June 2024.

2  S&P Global, “S&P Global Flash US Composite PMI®, “ June 2024.

3 The Federal Reserve, “Industrial Production and Capacity Utilization,” June 2024.

4 Federal Reserve Bank of New York, “Empire State Manufacturing Survey," June 2024.

5 National Association of Home Builders, “NAHB/Wells Fargo Housing Market Index (HMI),” June 2024.

6 United States Census Bureau, “Monthly New Residential Construction, May 2024,” June 2024.

7 National Association of Retailers, “Existing-Home Sales Edged Lower by 0.7% in May as Median Sales Price Reached Record High of $419,300,” June 2024.


Tom Nun, CFA


Tom Nun, CFA, Portfolio Strategist at Empower, works alongside teams overseeing portfolio construction, advice solutions, portfolio management, and investment products and consulting.

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