Economy Watch: Economy Shows Signs of Modest Slowdown

Early economic metrics this year continue to point to a modest slowdown.

Is the U.S. economy losing steam as the rest of the world (especially China) slows down? There were indications of that as 2015 came to a close, but nothing definitive. Early economic metrics this year continue to point to a modest slowdown, leaving open the question of whether that could derail the fairly strong commercial real estate sector, especially retail, which is already relatively weak.

On Friday, the Conference Board reported that its Leading Economic Index for the U.S. declined 0.2 percent in December to 123.7 (2010 = 100), following a 0.5 percent increase in both November and October. According to the Conference Board’s Ataman Ozyildirim, director of business cycles and growth research, the slight decline was led by a drop in housing permits and weak new orders in manufacturing.

“However, the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015,” he added. “While the [index’s] growth rate has been on the decline, it’s too early to interpret this as a substantial rise in the risk of recession.”

Also on Friday, the Chicago Fed reported that its National Activity Index (CFNAI) moved up to –0.22 in December from –0.36 in November. Two of the four broad categories of indicators that make up the index increased from November, but three of the four categories made negative contributions to the index in December.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.24 in December from –0.19 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend, but not vastly so. That CFNAI-MA3 level also suggests muted inflationary pressure from economic activity over the coming year, which is fitting especially if energy continues to remain cheaper than in recent memory (according to AAA, regular gas costs an average of $1.832 a gallon, compared with $2.037 a year ago).