Tuesday, February 22, 2011

Gasoline Price & Leading Indicators

The price of gasoline isn’t one of the ten components of the Index of Leading Economic Indicators (LEI) in the US. Nor is it included in the LEIs of the other major economies around the world. However, maybe it should be. That’s because rapidly rising gasoline prices led or coincided with all six recessions since 1973. It might be different this time because Fed policy is likely to remain stimulative even if higher gasoline prices boost the headline CPI inflation rate. The latest batch of LEIs suggests that the global economy has plenty of forward momentum for the first half of 2011. If gasoline prices continue to rise along with crude oil prices in coming weeks, then the outlook for global economic growth during the second half of the year is bound to be reflected in weaker LEIs by mid-year.

According to the Philly Fed’s monthly survey, the region’s manufacturing sector continues to expand at a fast pace. The current activity index increased for the fifth time in six months, climbing from -5.6 in August to +35.9 this month, the best reading since January 2004. The new orders index was little changed at 23.7 in February. The shipments index rose for the fifth straight month, jumping 21.8 points in February. The employment index increased for the second straight month from 4.3 to 23.5, the highest since April 1973. The ISM composite index is highly correlated with the 3-ma in the Philly Fed current activity index, which suggests robust manufacturing activity at the national level. We update these charts regularly for subscribers in US Business Surveys.

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