US Leading Economic Index surprise markets on the downside in May

The United States witnessed an unexpected decline in its index of leading US economic indicators for the month of May, the Conference Board said in its statement released Thursday.

The Conference Board’s Leading Economic Index fell 0.2 percent m/m in May, one-tenth more than we (-0.1 percent m/m) had expected. The primary source of last month’s downturn in the LEI was higher initial jobless claims, which have since reversed their modest rise.

Further, interest rate spreads added 0.2pp, and the remaining components were little changed. The index is up 1.2 percent y/y as of May (previous: 1.9 percent), consistent with positive but sluggish economic growth. The modest decrease by the leading index came as a surprise to economists, who had expected the index to rise by 0.2 percent.

"While the LEI suggests the economy will continue growing at a moderate pace in the near term, volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth," said Ataman Ozyildirim, Director, Business Cycles and Growth Research, Conference Board.

The report also said the coincident economic index was unchanged in May following a 0.2 percent increase in April. Meanwhile, the Conference Board said the lagging economic index rose by 0.3 percent in May after edging up by 0.2 percent in April.

The increase reflected positive contributions from five of the seven index components, including the average duration of unemployment, the ratio of consumer installment credit outstanding to personal income, and commercial and industrial loans outstanding, reports said.

Moreover, upbeat contributions from personal income less transfer payments, manufacturing and trade sales and employees on non-farm payrolls were offset by a negative contribution from industrial production.