An important leading indicator of U.S. economic activity suggests that Thursday's GDP report is a high-water mark and a period of slower growth is ahead for the world's largest economy.
The new orders index amassed by the Conference Board measures wholesale orders for goods intended for future consumption. The chart on the left demonstrates that the index has been an effective forward-looking gauge of economic activity, most notably in January, 2009, when it predicted the sharp rebound in U.S. gross domestic product growth.
The signs have been less optimistic recently. While Thursday's GDP report showed the U.S. economy grew at a healthy 2.7 per cent annualized pace in the third quarter, the new orders index has remained stubbornly in negative territory. If previous patterns hold, GDP growth will soon head downward too.
U.S. wholesale inventories are also flashing red. A buildup in inventories was largely responsible for the fact that Thursday's GDP report beat expectations, but higher stockpiles will limit the need for further production in the fourth quarter until inventory levels decline.
Scott Barlow