The Conference Board released its Leading Economic Index (LEI) for the United States last week, which registered a decline of 0.3 percent in December, the fourth negative reading in the last five months.
According to Ataman Ozyildirim, the Conference Board’s Senior Director of Economic Research, the LEI’s “…six-month growth rate turned slightly more negative in the final quarter of 2019, with the manufacturing indicators pointing to continued weakness in the sector.” That sentiment was reflected in other manufacturing reports, including the Institute for Supply Management’s manufacturing PMI reading for December, which fell to 47.2 percent – the lowest reading since June 2019. ISM survey respondents previously indicated slowing export orders, expanding inventories, and rising input costs are clouding the outlook for business conditions in 2020.
However, as noted by the WSJ’s Daily Shot, the latest decline in the Conference Board's index was driven by building permits (chart below) and jobless claims… The increase in unemployment filings was mostly due to some seasonal adjustment issues… building permits are expected to keep climbing in the months to come. Therefore, the Conference Board's leading index should rebound shortly.”
The IMF also released its updated economic projections last week. According to new world forecasts released contained in their World Economic Outlook Update, An update of the key WEO projections – world economic output is forecasted to increase 3.3 percent this year and 3.4 percent in 2021. Both of these forecasts are higher than the 2019 increase (2.9 percent).
While continued growth is forecasted for 2020 and 2021, the forecasts were slightly downgraded from the IMF’s view from October 2019: 2020 is 0.1 percent less and 2021 is 0.2 percent less. Emerging markets’ unforeseen negative economic changes and some political unrest, particularly in India, were the cause for the downward revisions.
However, indications of a bottoming out became apparent in the second half of 2019. Many countries eased monetary policy. As there is a lag effect with this type of action, early on in 2020, the monetary easing economic benefits will be seen. The IMF states that without this easing, growth rates would be 0.5 percent lower. The report points to other signs that a bottoming out is near, or is occurring:
“On the positive side, market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO. However, few signs of turning points are yet visible in global macroeconomic data.”
Emerging Markets
The table below shows some selected countries historical, estimated, and forecasted growth rates. Overall, it appears that the advanced countries are slowing and the emerging countries and developing areas are growing.
Oil Prices
The IMF expects oil prices to decrease over the next couple of years. Using a simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil, shows the average price of oil in US dollars a barrel was $60.62 in 2019; the assumed price, based on futures markets (as of November 12, 2019), is $58.03 in 2020, and $55.31 in 2021.