The Conference Board reported on August 20 that the Leading Economic Index (LEI) six-month growth rate turned positive for the first time in over four years.
This reversal is a signal that the macroeconomic headwinds are shifting. While the broader economy has flirted with stagnation, the LEI—designed to anticipate business cycle turning points by roughly seven months—suggests we have moved past the trough. However, the recovery is uneven.
- Consumer Drag: Lower- and middle-income households are hitting a spending wall, as evidenced by the University of Michigan sentiment drop to 51.
- GDP Outlook: The Conference Board maintains a real GDP growth forecast of 1.9% for both 2026 and 2027.
The AI CapEx Engine Overpowers Consumer Fatigue
The math is straightforward: seven of the ten LEI components moved into positive territory in July. The primary drivers were jobless claims and building permits, alongside a lift in the S&P 500 Index and the Leading Credit Index. But the balance sheet tells a different story when you isolate the drivers. Justyna Zabinska-La Monica, senior manager, business cycle indicators at The Conference Board, noted that expansion is expected to be driven by business investments in AI.
This suggests a recovery at the institutional level.
Here is the breakdown of the LEI’s July performance:
| LEI Component | July Status | Market Implication |
|---|---|---|
| Jobless Claims | Positive | Labor market stabilization |
| Building Permits | Positive | Housing sector bottoming out |
| S&P 500 Index | Positive | Equity market optimism |
| ISM New Orders | Positive | B2B demand recovery |
| Consumer Expectations | Negative | Household spending risk |
The Sentiment Gap: Why Michigan Data Clashes with LEI
If the LEI is pointing up, why does the mood feel so bleak? The answer lies in the data from the University of Michigan. Preliminary sentiment dropped to 51 in August, down from 55.2 in July. This creates a friction point for the economy.
Consumer expectations for business conditions remain a “notable drag” on the LEI. High costs of living are eroding the discretionary income of lower- and middle-income households, which typically drive the bulk of retail volume.
Interest Rate Spreads and the Credit Cycle Reset
One of the winning indicators in the July data was the interest rate spread and the Leading Credit Index.
The shift from a 1.3% decline in the previous six-month period to a 0.2% increase indicates that the slump is no longer the dominant trend. However, the growth is “moderate,” not explosive.
The Trajectory and Beyond
The data confirms that we are no longer in a freefall, but we are not yet in a boom.
Investors should monitor the “nondefense capital goods” component of the LEI. The 0.2% growth is a start, but for a sustainable breakout, the “notable drag” of consumer sentiment must be neutralized.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
