In September 2024, the AIER Business Conditions Leading Indicator remained at its expansionary August level of 71. The Roughly Coincident Indicator fell back to 58 (its July value) after a brief August spike to 92. The Lagging Indicator remained in the contractionary territory it has languished in since November 2023, edging up slightly from 25 to 33.
Leading Indicator (71)
Across the twelve Leading Indicator constituents, three declined, eight rose, and one was unchanged in September 2024.
The rising subindices were: 1-to-10 year US Treasury spread (52.9 percent), University of Michigan Consumer Expectations Index (3.2 percent), Conference Board US Leading Index of Stock Prices (2.6 percent), FINRA Customer Debit Balances in Margin Accounts (2.0 percent), US Initial Jobless Claims (1.3 percent), Adjusted Retail and Food Service Sales (0.8 percent), US Leading Index Manufacturing, New Orders, Consumer Goods and Materials (0.3 percent), and Conference Board US Manufacturers New Orders Nondefense Capital Good Ex Aircraft (0.1 percent).
Falling in September 2024 were United States Heavy Truck Sales (-5.0 percent), US New Privately Owned Housing Units Started by Structure (-0.5 percent) and US Average Weekly Hours All Employees Manufacturing (-0.2 percent). The US Inventory/Sales Ratio: Total Business was unchanged.
Roughly Coincident (58) and Lagging Indicators (33)
Within the Roughly Coincident Indicator three components rose, two declined, and one was unchanged. For the second month in the row, the US Labor Force Participation Rate was stable at 62.7 percent in September 2024.
The three rising components were Coincident Personal Income Less Transfer Payments (0.2 percent), Coincident Manufacturing and Trade Sales (0.2 percent), and Nonfarm payrolls (0.1 percent). Meanwhile the Conference Board Consumer Confidence Present Situation Index fell (-8.0 percent), as did Industrial Production (-0.5 percent).
And finally, two constituents of the Lagging Indicator rose in September 2024 while four declined. Core CPI (year-over-year) rose 3.1 percent as US Manufacturing and Trade Inventories rose 0.1 percent. US Commercial Paper Placed Top 30 Day Yields fell by 8 percent, as did the Conference Board US Lagging Average Duration of Unemployment (-7.6 percent), US Lagging Commercial and Industrial Loans (-1.4 percent) and the Census Bureau’s Private Construction Spending (Nonresidential) Index (-0.1 percent).
AIER’s Business Conditions Monthly indicators for September 2024 highlight mixed trends across different economic phases. The Leading Indicator held steady at 71, matching its August reading and possibly reflecting a stabilization of forward-looking economic conditions after a year of significant volatility, including a low of 29 in October 2023. This consistency suggests a cautiously optimistic outlook for future growth.
The Coincident Indicator, meanwhile, declined sharply to 58 from 92 in September 2024, suggesting that current economic activity may be losing momentum after a period of notable strength earlier in the year. The Lagging Indicator remains at a contractionary 33, remaining in a downward trend from the high of 67 in November 2023. That deterioration indicates lingering weaknesses in trailing economic conditions despite improvement in leading measures. The ongoing divergence between indicators hints at an economic environment where optimism about the future persists, but near-term challenges remain apparent.
Discussion
October’s jobs report revealed significant weakness in payroll growth, with nonfarm payrolls rising by just 12,000 — far below consensus expectations of 100,000 and sharply down from September’s downwardly revised 223,000. The report highlighted both transitory and structural challenges. Weather disruptions from Hurricanes Helene and Milton played a major role, with 1.4 million weather-related curtailments and 512,000 absences reported. Strikes at Boeing and layoffs in the manufacturing and professional services sectors also weighed heavily on the numbers, with manufacturing jobs declining by 46,000, including 41,000 directly linked to the strikes. Excluding weather-related factors, payrolls would have likely been around +130,000, still below the pace needed to stabilize the unemployment rate. Moreover, the labor force contracted by 220,000, pushing the unemployment rate to 4.14 percent, its highest in recent months.
Cyclical factors, including widespread weakness in professional and business services and manufacturing, suggest deeper vulnerabilities in the labor market. While leisure and hospitality hiring fell by 4,000 due to storms, the broader deceleration across multiple industries points to a slowing economic trajectory. Average hourly earnings rose by 0.4 percent, slightly beating expectations due to prior revisions, but weekly hours worked remained flat, indicating subdued momentum in labor demand. Government employment also contracted by 103,000, likely reversing September’s surge. The weak payroll numbers, alongside evidence of cyclical softening, reinforced the likelihood of a 25-basis-point rate cut at the November 7 Federal Open Market Committee (FOMC) meeting, which was realized.
But also on the Fed’s radar, given its dual mandate, were the recent Consumer Price Index (CPI) and Producer Price Index (PPI) readings for October, which together suggest a disappointing core Personal Consumption Expenditure (PCE) inflation figure on November 27. Based on these inputs, the core PCE is expected to rise between 0.25 and 0.30 percent month-over-month, pushing the annual rate to roughly 2.8 percent from 2.7 percent; its first increase in four months. Inflationary pressures are proving stubborn in services, with the three-month annualized rate likely accelerating to 2.7 percent and the one-month rate hitting 3.2 percent. Persistent factors such as elevated housing inflation and rising financial-service fees alongside temporary contributors like price increases in used vehicles and personal-care products are driving these trends. Goods disinflation, which had been a moderating force, appears to have stalled temporarily, underscoring the uneven progress in lowering inflation.
Some dispassion regarding the pace of disinflation is required. A question: what do eggs, “other condiments,” motor vehicle insurance, frozen noncarbonated juices and drinks, video discs and other media, postage, postage and delivery services, pet services, transportation services, gardening and lawncare services, apparel services other than laundry and dry cleaning, newspapers and magazines, cigarettes, motor vehicle repair, veterinarian services, oranges including tangerines, watches, admission to sporting events, tobacco and smoking products, health insurance, pet services including veterinary, uncooked other beef and veal, day care and preschool, vehicle parts and equipment other than tires, financial services, motor vehicle maintenance and repair, household operations, laundry and dry cleaning services, purchase, subscription, and rental of video, water and sewerage maintenance, checking account and other bank services, owners equivalent rent of residences, owners equivalent rent of primary residence, nursing home and adult day service, butter, motor vehicle maintenance and servicing, water, sewer and trash collection services, moving, storage, freight expense, food at employee sites and schools, photographic equipment and supplies, shelter, rent of shelter, tobacco products other than cigarettes, services excluding energy services, services less medical care services, dried beans, peas, and lentils, “other food away from home,” services, rent of primary residence, elementary and high school tuition and fees, food at elementary and secondary schools, electricity, vehicle accessories other than tires, personal care services, haircuts and other personal care services, services less rent of shelter, laundry equipment, delivery services, women’s underwear, nightwear, sportswear, and accessories, hospital and related services, outpatient hospital services, subscription and rental of video and video games, housing, airline fare, other personal services, energy services, garbage and trash collection, and funeral expenses have in common?
Answer: within the October 2024 core Consumer Price Index (not seasonally adjusted) year-over-year inflation reading, prices of all of the aforementioned categories are rising at a 4 percent year-over-year rate or higher.
That list underscores the ongoing challenge of navigating the “last hard mile” to the Fed’s 2-percent inflation target, a task that may require further economic softening (which, in turn, could lead to aggravating tensions with the incoming Trump administration). Any upside surprises in the November jobs report due out on December 6 could complicate the case for a December rate cut, as the Fed weighs persistent inflation risks against a US economy still showing signs of both resilience and rising unemployment. While some inflation drivers, notably shelter/housing costs, are expected to ease gradually over time, near-term headwinds suggest inflation will remain above target into next year, invoking more caution and policy flexibility.
Fed officials have accordingly adopted a more cautious approach to further rate cuts, highlighted by Chair Jerome Powell’s November 14 remarks emphasizing “patience” in light of the US economy’s conflicting indications. He acknowledged that October inflation data showed a larger-than-expected increase, reinforcing the need for a “moderately restrictive” policy stance. Other FOMC members have echoed concerns about inflation risks as well, particularly as the incoming administration’s proposed tariff hikes and tax cuts could add to price pressures. As a result, market implied odds of a December rate cut dropped precipitously from 80 percent to just over 50 percent by the week’s end, reflecting a shift in sentiment post-election.
American consumers continue to demonstrate spending persistence despite falling savings rates, rising debt levels, and loan delinquencies spiking to 2008 levels. October retail sales showed a 0.4 percent gain, an increase that, while supported by a rebound in car sales, saw broader spending soften somewhat, particularly on health and personal items. Upward revisions to September’s data highlight strong consumer momentum heading into the holiday season, with sentiment likely buoyed by a post-election boost of optimism and dissipating uncertainty. But control-group sales (which exclude volatile categories like autos and gasoline), fell 0.1 percent: a larger-than-expected pullback influenced by unusual seasonal adjustments. While buying continues, spending patterns are normalizing after prior months of splurges, particularly in more discretionary categories. The year-end outlook remains stable, although consumer behavior will likely depend on labor market developments as credit constraints tighten and the effects of earlier spending shifts fade. The ability of households to balance spending momentum against continuing financial pressures will shape the trajectory of consumption well into the new year.
US industrial production fell by 0.3 percent in October, following an 0.5 percent revision downward in September as manufacturing struggled with the effects of a prolonged Boeing workers’ strike and disruptions caused by Hurricanes Milton and Helene. Manufacturing output dropped 0.5 percent while mining and utilities rose modestly. Boeing’s 53-day strike significantly impacted aerospace production, leading to a 5.8 percent decline in output in October after an 8-percent swoon the previous month.
As with the US employment picture, hurricanes, strikes, and other disruptions do not exclusively account for softness in American manufacturing and production. Also at work are elevated borrowing costs, paused capital spending, and weak global growth, each of which weigh on sectors including business equipment and motor vehicles. While looser monetary policy and the relaxation of election uncertainty may spur the resumption of capital outlays, uncertainty surrounding industrial policy and proposed tariffs under President-elect Trump could complicate recovery efforts. A recent surge in factory orders may, rather than by optimism, be a product of firms attempting to front-load orders ahead of tariff threats and another potential port strike in January. Capacity utilization at US factories fell to 76.2 percent, the lowest since March 2021, signaling an underuse of industrial resources.
The US economy continues to face challenges, with the October 2024 employment picture revealing structural declines in manufacturing and professional services beneath the temporary surface impact of labor unrest and calamitous weather conditions. Despite sticky prices in a large number of services, consumer spending has held steady in the face of rising credit balances and consequent financial duress. And although the Fed has begun easing monetary and credit conditions, headwinds from still-high borrowing costs remain amid weakening global demand from China and the EU.
The second Trump administration is likely to ‘hit the ground running’ upon taking office in early 2025, with both business optimism and the short-term reduction of regulatory fetters signaling accretive commercial expansion. Yet the trajectory of economic growth for six to twelve months after the January 20, 2025 inauguration date — and possibly longer — will largely be driven by lagging consumption, job market concerns, and monetary policy dynamics. Tariffs, contingent on their magnitude and the breadth of goods and services they target, represent a critical and unpredictable factor in the outlook.
LEADING INDICATORS
COINCIDENT INDICATORS
LAGGING INDICATORS
CAPITAL MARKET PERFORMANCE
