Federal Reserve Chair J. Powell announced today at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting that the Federal Reserve has voted to leave the Federal Funds Rate unchanged, currently at 5.00% - 5.25%. The Effective Federal Funds Rate was 5.08% at the close of business on June 13. This result was highly anticipated as the Consumer Price Index which effectively measures inflation was a muted +0.1% month over month. While still +4% year-over-year, the steady decline of inflation shines a glimmer of hope that the economy is slowing and perhaps the action of the Federal Reserve has more appropriately steered a softer landing than many feared even six months ago.
Forward-Looking Economic Indicators To Monitor
There are several forward-looking economic indicators that are closely monitored by economists, investors, and policymakers to gauge the health of the economy and predict its future direction. Here are some of the most monitored indicators:
GDP is the value of all goods and services produced in a country and is used as a measure of economic growth. The current Q2 estimate is +2.2%. On July 28, the US Bureau of Economic Analysis will release its advanced estimate of economic growth.
CPI measures the change in the prices of a basket of goods and services consumed by households and is an important gauge of inflation. On Tuesday, June 13, 2023, the May CPI-U report showed an increase of 0.1% from the prior month and an increase of 4.0% from the prior year.
The employment report measures the percentage of people in the labor force who are unemployed but actively seeking employment. On June 2, 2023, the Bureau of Labor Statistics released the Employment Situation Report showing that total nonfarm unemployment rose by 339,000. Unemployment rose to 3.7%.
PMI is a survey-based indicator that measures the sentiment of purchasing managers in the manufacturing, construction, and services sectors. PMI readings above 50 indicate expansion, while readingsbelow 50 suggest contraction. PMI in the United States fell to 46.9 in May 2023, indicating a seventh consecutive month of contraction in the manufacturing sector.
CCI measures consumers' attitudes and expectations about the economy and their personal financial situation. A higher CCI reading indicates that consumers are more optimistic, which can lead to higher spending and economic growth.
The Conference Board Consumer Con
fidence Index®fell in May to 102.3, down from 103.7 in April.
The Leading Economic Indicators Index (LEI)
To culminate these data points and others such as retail sales, business inventories, industrial production, and trade balance, The Conference Board, a global, independent business membership and research association that provides economic data, analysis, and insights to leaders in business, government, and academia, has produced what is called The Leading Economic Index (LEI). This index is a composite economic indicator that measures the overall economic activity and predicts future trends in the economy. It is calculated by combining various economic data points into a single index number. A rising LEI indicates that the economy is expanding, while a declining LEI suggests a possible economic contraction.
Current LEI Results
The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.6 percent in April 2023 to 107.5 (2016=100), following a decline of 1.2 percent in March. The LEI is down 4.4 percent over the six-month period between October 2022 and April 2023—a steeper rate of decline than its 3.8 percent contraction over the previous six months (April–October 2022).
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