By Economist Peter Earle
In December 2023, the AIER Business Conditions Monthly indices again emphasized the unpredictable nature of economic data in the post-COVID-19 period. The Leading Indicator fell slightly from November 2023’s 67 to 63, while the Roughly Coincident Indicator remained at 75 from the previous month. The Lagging Indicator, however, plummeted to zero for the first time since late 2020.
From November 2023 to December 2023, seven of the twelve leading indicators rose, four declined, and one was neutral.
Business spending is also on the decline.
All six of the lagging indicators declined for the first time since November 2020 between November and December 2023. The ISM Manufacturing Report on Business Inventories (-0.1 percent), Census Bureau US Private Constructions Spending Nonresidential (-0.2 percent), US Commercial Paper Placed Top 30 Day Yield (-0.9 percent), Conference Board US Lagging Commercial and Industrial Loans (-0.9 percent), US CPI Urban Consumers Less Food and Energy Year over Year (-2.5 percent), and the Conference Board US Lagging Average Duration of Unemployment (-14.4 percent) contracted in the last month of the year.
The unprecedented volatility observed in the three Business Conditions Monthly indicators over recent months exemplifies the distortions prevalent in economic data broadly in the post-pandemic era. The sharp swings witnessed from one month to the next highlight the challenges in accurately capturing and assessing the underlying trends and dynamics of the current US economy.
While such fluctuations raise reasonable concerns about the reliability of economic data, it is essential to recognize that they are occurring within a unique context shaped by policy responses to the pandemic and their subsequent effects upon consumer behavior, manufacturing, trade, business investment, and beyond.
The economic scenario depicted in the December 2024 Business Conditions Monthly is, once again, one of the contradictory indications. A somewhat strong leading indicator suggests future economic growth, indicating potential improvement or expansion in the near future, driven by factors like rising consumption, consumer confidence, and manufacturing orders. The strong coincident indicator portrays current economic conditions as robust and stable, suggesting that, despite recent slowdowns in certain areas, the US economy is generally performing well. All of this is at odds with the plummeting lagging indicator, which suggests recent contraction owing to rising unemployment durations, falling inventories, declining private nonresidential construction, and other signs of weakness.
It may be premature to formally reevaluate the relationship within the Business Conditions Monthly indicators and macroeconomic aggregates. Over time, however, it may become necessary to reassess our analytical frameworks and methodologies in order to ensure the accuracy and relevance of the economic data used in capturing the progress of the US economy.
Peter Earle is an Economist with the American Institute for Economic Research
