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How Consumer Goods and Materials Orders Could Increase with Tariffs

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Jan. 31 2018, Updated 2:03 p.m. ET

Manufacturers’ new orders for consumer goods and materials

The Conference Board LEI (Leading Economic Index) uses the level of new orders in the consumer goods and materials as an important constituent of the LEI. The changing pattern of demand in the consumer goods sector impacts companies operating in the retail (XRT) markets, including brick and mortar and online retailers.

A decreasing level of new orders is a worrying signal for the economy, as the level of retail sales act as a forward indicator for job growth at retail establishments and for companies manufacturing these products. A lower demand for consumer goods also impacts the growth of inflation (TIP) and could eventually lead to a recession.

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Recent data release and impact on LEI Index

According to the latest LEI report released on January 25, the number of manufacturers’ new orders for consumer goods and materials have increased for the third-straight month.

Manufacturing new orders rose from the upwardly revised November reading of 137,833 to 138,013 in December. This economic indicator has a weight of ~8.2% on the LEI and had a net positive impact of 0.01 (or 1%) in December.

Performance of the sector

The consumer goods and materials sector (XLP) is a defensive sector that remains stable in an economic downturn but lags in performance during economic upswings. There could be some improvement in the sector (VDC), thanks to President Trump’s washing machine (WHR) and solar panel tariffs. This year could be better than the previous years, as demand for domestic goods may pick up.

In the next part of this series, we’ll analyze how the ISM New Order Index has impacted the Conference Board LEI.

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