The number for January’s Index of Leading Economic Indicator (LEI) came out yesterday and they show that the U.S. is still increasing by 0.1 percent. For some this may look like bad news since the number was a decrease and much lower than those that came out in the last two months.
However, those high numbers in the LEI were mainly due to the specter of new building regulations that urged developers to get new building permits, according to economists.
It is really unlikely that the LEI will go below 0.1 or reach the negatives, which is a possible a sign of another recession. Nonetheless, don’t expect it to be any higher than 0.4 for at least the first quarter of this year.
“We saw technical factors influencing the swings,” said Michael Englund, chief economist at Action Economics LLC. “The building permits number which plummeted in Jan. will remain low for several months as we digest the building code change.”
In areas like Atlanta and New York, developers were trying to avoid being subjected to the new building permit codes of 2011. As a result between the months of Nov. and Dec., building permits rose from 544, 000 to 627,000.
While Englund believes this may affect the LEI number for quite a while, Ellen Beeson Zentner, senior economist at the Bank of Tokyo-Mitsubishi UFJ, thinks it will only keep the LEI low for no more than two months.
According to her, the permits that the developers requested in the latter part of 2010 were probably the ones they would have requested in the beginning of 2011.
“Overall for 2011, I don’t expect building permits to drag much on the LEI but I don’t expect it to be a boon for the LEI either,” Zentner said said.
The LEI is composed of 10 different indicators, which together is supposed to predict if we are heading towards a recession or a recovery. While permits remain low the many of the other indictors are likely to keep the LEI rising.
Indicators that were down because of the unprecedented winter snowstorms will rebound and add into the percentile growth. This includes an increase in average hourly manufacturing workweek and lower average of initial unemployment claims.
Consumer expectations are finally beginning to have positive affect and will likely grow mild but stead in the next few months.
Also the stocks will likely add to the LEI number along with the 10-year Treasury bond yield because of the Federal interest rates being so low.
All in all, it looks as if the economy will continue to move forward from the Great Recession with a solid GDP growth rate 3.5 until the end of this.
In December, the LEI was 0.8 and on November it was 1.1 percent.