Dive Brief:
- A signal of future U.S. economic growth held steady last month despite flagging consumer expectations, declining orders for capital goods and a slight pullback in building permits, the Conference Board said Thursday.
- After falling 0.1% in August, the Conference Board’s Leading Economic Index was unchanged in September at 99.6, undergirded by an increase in average weekly hours in manufacturing and a more favorable spread between the federal funds rate and the yield on the 10-year Treasury note, the organization said.
- “The LEI’s six-month growth rate increased slightly, which suggests the economy is still growing and will continue to grow,” Justyna Zabinska-La Monica, senior manager for business cycle indicators at the Conference Board said, noting the economy “is becoming less dependent on consumer spending and more dependent on business investment.”
Dive Insight:
For several months persistent inflation — fueled largely by the rising cost of energy — has eroded real household incomes and soured consumer expectations.
A 0.8% jump in retail sales last month largely stemmed from a 6.4% surge in receipts at gasoline stations rather than from a quickening in consumer spending, the Census Bureau said on Oct. 15.
“With real wages having declined for six consecutive months and likely to remain under pressure into 2027, income growth will increasingly constrain spending,” EY-Parthenon Chief Economist Gregory Daco said.
The war-induced rise in fuel prices pushed up the Consumer Price Index in September to a higher-than-forecast annual rate of 3.7%, the Bureau of Labor Statistics said last week.
The soaring cost of energy is showing signs of spreading throughout much of the economy. The so-called core CPI index for items excluding volatile food and energy prices last month increased 2.6% on an annual basis compared with 2.4% in August.
“Recent consumer, producer and import price data suggest inflationary pressures are broadening,” Daco said in a note.
“Higher gasoline and diesel prices are likely to push up transportation, construction and manufacturing costs, adding to already elevated price pressures from supply chain disruptions and strong AI-related investment demand,” he said.
CPI inflation will likely persist at 3.7%, well above the Federal Reserve’s 2% target rise, at the end of this year before easing well above the Fed’s 2% target in 2027, Daco predicted. U.S. gross domestic product will probably expand 2.3% this year and 2.1% in 2027.
The Conference Board forecasts 2.2% GDP growth in 2026 and 2% next year, Zabinska-La Monica said.
