The leading U.S. economic index fell 0.5% in September, continuing a decline that could signal a slowdown in the coming months. The LEI, which predicts future economic activity, has fallen 2.6% over the past six months, with weak manufacturing orders and an inverted yield curve contributing to the decline.
Economists had expected a decline of 0.3%. The previous month's figure was revised downward to 0.3% instead of the originally announced 0.2% decline.
The timing poses a problem for Vice President Kamala Harris, whose campaign has touted manufacturing growth as a key outcome of the Biden-Harris administration. LEI's decline suggests that this narrative may come under increasing scrutiny.
“As the global manufacturing recession continues, weak new factory orders continue to be a major drag on the U.S. LEI in September,” said Justina Zabinska La Monica, senior manager of cyclical indicators at The Conference Board. ” he said. “Furthermore, the yield curve remains inverted, building permits have declined, and consumer expectations for future economic conditions have been muted. Improvements among other LEI components have not been large enough to compensate for the weaknesses among the four gauges mentioned above. Overall, the LEI continues to signal uncertainty about future economic activity, consistent with the Conference Board's forecast of moderate growth through late 2024 and early 2025.
Harris has repeatedly pointed to the administration's efforts to rebuild the industrial sector through massive deficit spending aimed at promoting advanced manufacturing, particularly so-called “green” energy and transportation projects. However, the index's sustained decline has raised questions about the quality of its earnings, especially as industrial new orders, a key component of the LEI, have weakened.
Manufacturing employment has also declined in three of the past four months, and is below where it was a year ago.
Economists say the decline in new orders is an early sign that the sector could face headwinds in the coming months. Manufacturing has long been a bellwether of the overall health of the economy, and a slowdown could signal a future contraction of the overall economy.
The widespread decline in the LEI is driven by several factors, including tight credit conditions and continued weakness in the housing market. An inverted yield curve, a persistent signal in the index, suggests investors are expecting slower growth or a recession in the near future.
For Harris, LEI's decline could complicate her campaign's message. She has defended her administration's economic performance, particularly in manufacturing, but continued declines in leading indicators could make it difficult to convince voters that the economy is on solid footing.
