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First Cut: July Leading Index rebounds after two months of declines

The Conference Board’s Leading Economic Index posted a 0.5% rise in July from June after two months of small declines of 0.1% in June and May.

The reading of 112.2 was powered by positive contributions from five of the ten components. The largest was from building permits which sharply rebounded in July after a weak June, and a steep improvement in stock prices and the Conference Board’s Leading Credit Index. Further support come from the decline in jobless claims for July as a whole in spite of some volatility early in the month, and from higher consumer confidence in future business conditions.

The negatives were as expected with soft new orders for manufactured goods and a slip in the workweek. There was also a negative reading for the interest rate spread as bond yields fell.

While a solid month-over-month increase is welcome in the face of heightened concerns about a recession, the July data is probably not going to hold up when the August report is released. Some of the items like initial claims will be fine, but consumer confidence has taken a hit recently, new orders are not showing signs of revival, and some of the rebounds like in building permits will return to more normal levels.

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