U.S. Leading Economic Index Falls 0.3% In September

The Conference Board reported its Leading Economic Index fell 0.3% in September, matching an upwardly revised August decline and marking a second consecutive monthly drop; the LEI has fallen 2.1% over the six months from March to September versus a 1.3% contraction in the prior six months. Weakening consumer and business expectations, ISM new orders, manufacturers' new orders for consumer goods and materials, initial jobless claims and the yield curve were the main negative contributors, while stock prices, the Leading Credit Index and non-defense capital goods orders ex‑aircraft provided offsetting positives. The Board said the LEI points to slowing economic activity at the end of 2025 and into early 2026 with GDP likely to weaken after mid‑year strength and Q4 disruptions related to the federal government shutdown; the coincident and lagging indexes each rose 0.1% in September.

Analysis

The Conference Board's Leading Economic Index (LEI) fell 0.3% in September, matching an upwardly revised August decline and marking a second consecutive monthly drop; the LEI contracted 2.1% over March–September 2025 versus a 1.3% decline in the prior six-month span, signaling an accelerating deterioration in forward-looking indicators. Major negative contributors were weakening consumer expectations and the ISM New Orders Index, supplemented by manufacturers' new orders for consumer goods and materials, initial jobless claims and the yield curve, while positives included stock prices, the Leading Credit Index and non-defense capital goods orders excluding aircraft.

The Conference Board explicitly warns the LEI implies slowing economic activity at the end of 2025 and into early 2026 with GDP likely to weaken after strong mid-year consumer spending and expected Q4 disruptions tied to the federal government shutdown, which raises near-term downside risk to growth. Coincident and lagging economic indexes each rose 0.1% in September, indicating reported activity and past outcomes remain mildly positive even as forward signals soften; market signals show a moderately negative sentiment score (-0.45) and a medium market-impact score (0.5), supporting a cautious stance.

Key Decisions for Investors

• Reduce or hedge exposure to cyclical consumer and manufacturing-sensitive equities in the near term given weakening consumer expectations and ISM new orders
• Favor defensive sectors and higher-quality credit or increase cash allocations while forward indicators signal slower growth into early 2026
• Use incoming prints on the LEI, ISM new orders, initial jobless claims, the yield curve and resolution of the federal government shutdown as explicit triggers to re-risk or further de-risk portfolios
• Consider selective buying of high-quality equities on meaningful pullbacks since stock prices remain a positive contributor to the LEI, but wait for confirmation from subsequent LEI or ISM improvements before adding cyclical risk