An index of future economic activity fell slightly in August, its first decline since March, the Conference Board said on Friday.
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Diminished consumer expectations and weakness in new construction contributed to the 0.1% decline in the index following a 0.2% increase in July.
“The U.S. LEI receded slightly in August, the first monthly decline since March of this year,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board. “Four out of 10 components fell compared to the previous month, with consumer expectations remaining a significant strain on the Index. Building permits also declined on a monthly basis, with decreases in both single- and multi-unit categories and across nearly all regions.
“The economy is still expanding, but growth is expected to slow,” Zabinska-La Monica added. “The Conference Board forecasts real GDP to increase at a 1.9% rate in 2026, with our outlook for 2027 downwardly revised from 1.9% to 1.8%.”
Other recent reports have been more bullish on the economy, with the Bureau of Labor Statistics saying 162,000 jobs were created in August, far more than had been expected.
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The Atlanta Federal Reserve’s GDPNow forecast has gross domestic product expanding 5.1% in the third quarter.
At the same time, inflation is running well above the Federal Reserve’s 2% annual target, and that prompted the central bank to raise rates this week. That will increase borrowing costs for consumers, who have seen prices for necessities increase consistently for the past two years. Gasoline, for example, is running at a national average of $4.47 a gallon but that is a direct result of President Donald Trump’s late February attack on Iran.
“While the latest move by the Fed isn’t likely one-and-done, it also doesn’t look to us like the start of an aggressive rate-hiking cycle,” said Angelo Kourkafas, senior global strategist for investment strategy at Edward Jones. “In our view, the Fed isn’t as far behind the curve as it was in 2022. A mid-cycle adjustment that potentially unwinds the rate cuts delivered last year, while leaving the 2024 cuts in place, is our base case. We believe equities responded positively and long-term bond yields declined following the hike because the move reinforced the Fed’s inflation-fighting credibility and independence. As a result, long-term market-based inflation expectations eased and remain consistent with the Fed achieving its inflation target over time.”
Also, while consumer sentiment has been falling, retail sales exceeded expectations in August, rising 1.2%, suggesting Americans are still finding the money to spend.
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