Business conditions continue to improve. Our index of Primary Leading Indicators rose for the third straight month, reaching its highest level since September 2015. Contributing to the increase were improvements in consumer expectations and real new orders for core capital goods.
The improvement in consumer expectations has been linked to the presidential election, though it’s not clear if the election result or just the end of campaigning is the cause. Consumers remain the engine of growth, and fundamentals such as a strong jobs market and improving sentiment are key supports.
Business investment overall and real new orders for nondefense capital goods excluding aircraft (core capital goods) have been weak for some time. A major drag has come from the energy sector. Investment spending by the energy industry collapsed along with crude-oil prices between mid-2014 and the end of 2015 (Chart 1). But the recent rebound in crude-oil prices should bolster energy investment and reduce the drag on overall business investment.