Why The Leading Indicators May Not Be Leading Anywhereby
Is it a recovery or a "dead-cat bounce"? A few economists are using that expression to note that even a falling economy can appear to spring back to life after a steep drop. Rebounds in the leading indicators, home buying, and the purchasing managers' index certainly look like the early signs of an upturn. However, with so many key sectors still struggling, it's far from certain whether the economy will sustain those gains or fall flat again in coming months.
Washington's index of leading indicators leads the parade of upbeat news. It scored the largest gain in 2 1/2 years in February. The composite of 11 different measures that forecast the economy's direction jumped 1.1% after a string of six consecutive declines. That increase may foreshadow good news to come, but the economy was still obviously mired in recession in February. The government's index of coincident indicators, those that track the economy's current state, continued to fall (chart).
What the jump in the leading indicators is saying about prospects for a recovery is not yet clear. Much of the February gain appears to have been driven by postwar euphoria. In one way or another, increased optimism about the future accounted for three-fourths of the February increase, as opposed to more concrete measures of economic activity. Consumer expectations rose strongly, and stock prices--a measure of investors' expectations of better profits--also posted a sharp gain.