Evidence Grows That American Economy Is Improving
More evidence emerged today that the American economy is picking up steam. The latest figures from the Conference Board revealed that the index of leading economic indicators (LEI ) rose 0.4 percent during the month of January, which was the fourth month in a row that the closely observed economic indicators climbed higher.
Although the 0.4 percent increase was slightly less than the 0.5 percent increase anticipate by a consensus of economists, the Conference Board also revised its December increase up to 0.5 percent from the previously reported 0.4 percent.
Conference Board economist Ataman Ozyildirim said that "the LEI's increase in January was led not only by improving financial and credit indicators, but also rising average workweek in manufacturing. These both offset consumers' outlook about the economy, which remained pessimistic, though slightly less so."
The Conference Board's index of leading economic indicators is closely watched because it serves as an indicator of the direction that the American economy will move over the next several months.
The Conference Board gave a breakdown of which indicators contributed to the LEI's rise and which indicators had a negative impact, saying that "seven of the ten indicators that make up The Conference Board LEI for the U.S. increased in January. The positive contributors – beginning with the largest positive contributor – were interest rate spread, average weekly manufacturing hours, stock prices, Leading Credit Index™ (inverted), ISM new orders index, building permits, and manufacturers' new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were average consumer expectations for business conditions, average weekly initial claims for unemployment insurance (inverted), and manufacturers' new orders for nondefense capital goods excl. aircraft.""
Although the Conference Board cited initial unemployment claims as one of the three indicators that were negative in January, it's worth noting that more recent data from the Labor Department shows that initial unemployment claims have fallen during four of the last five weeks and are at their lowest level since 2008.
Today's news that the leading economic indicators continue to move higher is just the latest positive evidence of an improving American economy. The positive news coming out of America has helped support stock market indexes that were under pressure from uncertainty over the situation in Greece and a warning from Moody's Investors Service that the credit rating agency might soon downgrade more than a dozen international banks and over 100 European banks.
If the United States economy continues to improve, it might offset some of the problems caused by the economic slowdown in Europe and the Greek financial crisis. A growing American economy is particularly important to Asian economies like those of China and Japan who still depend on exports to the United States for a major portion of their economic activity.
Traders who believe that the almost daily reports of an improving American economy are a sign that America will be able to avoid most of the problems associated with the European financial crisis might want to consider the following trades:
- The SPDR S&P 500 (NYSE: SPY), the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) and the iShares MSCI Japan Index (NYSE: EWJ) ETFs could all climb higher if the American economy continues to improve. America is a vital export market for Chinese and Japanese goods, so economic growth in American should benefit stock prices in all three of the countries.
Traders who believe that the financial crisis in Europe will ultimately prove to be a drag on the American economy may consider alternative positions:
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