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U.S. Leading Economic Indicators were reported well below expectations Thursday at -0.3 per cent. Importantly, the most forward-looking component of the index, New Orders, was primarily responsible for the negative surprise.

Leading Indicators was only the latest in a regrettably long series of data points indicating a global economic slowdown. Canadian resource stocks, sensitive to changes in global manufacturing activity, have suffered disproportionately as a result. The S&P/TSX Diversified Mining Index and S&P/TSX Energy Index have fallen 20 per cent and 6.8 per cent year to date respectively.

ISM New Orders was the primary negative influence on Leading Economic Indicators for June. A key component of the index, New Orders has historically predicted changes in manufacturing activity, and thus economic growth, for future quarters.

Consumer sentiment formed the next largest detractor from the index. A weaker than expected survey result for Consumer Expectations and Economic Conditions reduced LEI by -0.13 for the month, indicating the effects of slow employment growth.

Canadian investors can take some solace in the fact that LEI is a volatile data series with an inconsistent history in predicting the course of the S&P/TSX Composite index. (See chart). While often indicating the future direction of U.S. economic data, the LEI has also provided false signals, and made abrupt month over month shifts from positive to negative.

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