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Leading Indicators And Central Bank Policy Top This Week's Economic News

The LEI has historically rolled over definitively prior to recession.

There's no suggestion of that pattern in any of the forward-looking economic data in the latest index of leading economic indicators released October 20, 2016.

"The U.S. LEI increased in September, reversing its August decline, which together with the pickup in the six-month growth rate suggests that the economy should continue expanding at a moderate pace through early 2017," according to The Conference Board.

Housing starts are down 12.1% from a year ago, according to figures released this past week, but sales of new single family homes are up 31%.

Housing is always a volatile monthly data series. However, figuratively as well as literally, housing has a built in floor.

The U.S. population nets three million new people annually and they need about 1.5 million new houses annually.

Fundamental demand will drive residential housing construction steadily higher. That's important because housing historically accounts for 5% of real growth in the U.S. economy, but since the recovery began has been contributing only about 3.6% of growth. That lagging pace cannot last. The slow and long housing recovery is expected to get a boost amortized slowly based on demographics.

Residential construction's contribution to GDP has room to run higher as housing starts revert to a 1.5 million annual run rate.

The big economic news of this week was an announcement from the European Central Bank that it would continue its quantitative easing monetary policy through at least September 2017. With today's global economy, this affects U.S. rates. The ECB pronouncement makes any rise in interest rates by the U.S. central bank to occur to be further delayed, and to occur gradually.

In recent years, central banks, led by the U.S. Federal Reserve, have used new monetary tools, like a quantitative easing policy, in which central banks buy back long-term bonds, to keep interest rates low. While long-term bond rates used to be market-driven, central bank policy now influences long-term bond yields. That new wrinkle is likely to keep interest lower for longer than in previous recoveries.

The Standard & Poor's 500, a barometer of performance of widely-held public company share prices, was down one-tenth of 1% Friday. It was up by 0.38% for the week, and by 4.8% for the year. Past performance does not guarantee future returns, especially over short periods, which is why this chart shows you how far stocks have come since the U.S. economy emerged from The Great Recession.

Stock prices are near an all-time high. Particularly with the national election less than three weeks away and the U.S. Government saying Russian hackers are attempting to interfere in the election, it's wise to expect volatility. An unexpected event could cause a pullback and change in sentiment of market participants at any time. However, none of the key fundamentals that normally emerge before a recession have been evident.

This article was compiled by Fritz Meyer, an independent economist, in collaboration with a veteran financial journalist. While these are sources we believe to be reliable, the information is not intended to be used by as financial advice without consulting a professional about your personal situation. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss.

The Conference Board Leading Economic Index® (LEI) components: 1) average weekly hours worked, manufacturing; 2) average weekly initial unemployment claims; 3) manufacturers' new orders – consumer goods and materials; 4) ISM index of new orders; 5) manufacturers' new orders, nondefense capital goods; 6) building permits – new private housing units; 7) stock prices, S&P 500; 8) Leading Credit Index™; 9) interest rate spread; 10-year Treasury less fed funds; 10) index of consumer expectations. Data through September 30, 2016 and released October 20, 2016.