How to Position as Housing Stabilizes and Manufacturing Strains

The Conference Board’s Leading Economic Index (LEI) fell again in July, slipping 0.1% to 98.7. This was the sixth straight monthly decline and left the index 2.7% lower over the past six months, its sharpest slide since early 2023. The deterioration reflects pessimistic consumer expectations and weaker new orders, offset slightly by stronger stock prices and a rebound in jobless claims.

This matters because the LEI is designed to anticipate turning points in the business cycle by about seven months. A sustained downturn in the index historically signals recessions, and July’s reading triggered that warning once more. However, The Conference Board emphasized it is not currently forecasting a recession, pointing instead to a softening economy rather than a collapse. GDP is projected to grow 1.6% in 2025 before slowing further in 2026.

The divergence between the LEI and the coincident index, which tracks current conditions, highlights the challenge for investors. While forward-looking signals are weak, present-day data, such as employment and income growth, remain steady. That gap suggests a fragile equilibrium: the economy may bend under tariff-driven pressures but has not yet broken.

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Housing Offers a Breather

Existing home sales delivered an upside surprise in July, rising 2% to an annualized pace of 4.01 million. This marks the first meaningful gain in months and comes as affordability shows small but notable improvement. Mortgage rates dipped to 6.58%, their lowest level of the year, while prices in many regions cooled. More than one in five listings cut asking prices, and inventory climbed to the highest since 2019.

For buyers, this shift means more negotiating power after years of bidding wars. Cash buyers and investors were especially active, accounting for more than 30% of purchases in July. Meanwhile, first-time buyers remain sidelined, representing just 28% of sales. If mortgage rates slip closer to 6% by fall, demand could accelerate further as affordability improves at the margin.

The story is far from a broad recovery, however. Sales are still well below pre-2022 levels, and the market remains stuck in its third year of depressed activity. But the July rebound shows that even modest rate relief and rising inventory can reignite transactions. For investors, this indicates resilience in real estate-linked activity and potential for a more stable fall season if rates continue to ease.ext

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Manufacturing Feels Tariff Pain

The Philadelphia Fed’s August manufacturing survey pointed to rising strain across factories in the Mid-Atlantic. Firms reported the sharpest increase in input costs since May 2022; with many passing those increases along to customers. At the same time, wage growth expectations fell to 3.5%, down from 4% in May, suggesting workers may see smaller raises even as goods prices climb.

This dynamic of higher costs and weaker pay raises concerns about both margins and consumption. Companies are signaling plans to increase prices by 4.1% over the next year, and S&P Global data confirmed tariffs are the primary driver behind the cost surge. The result is the steepest cost inflation for manufacturers in three years.

While demand has held up and hiring remains solid, the risk is that price hikes filter downstream to consumers just as wage gains slow. If that happens, discretionary spending could weaken heading into the holiday season. For investors, this makes tariff-exposed industries more vulnerable while highlighting the defensive appeal of sectors with pricing power and steady demand.

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Investor Strategy

The push and pull across housing, manufacturing, and leading indicators underscores the need for selective positioning.

• Watch mortgage rates closely: if they sustain below 6.5%, housing momentum could build.

• Be cautious on manufacturing: tariff-driven cost increases are cutting into margins.

• Favor steady cash flow: utilities, consumer staples, and healthcare remain defensive anchors.

• Look for targeted opportunities: rental REITs and infrastructure-linked firms stand out.

Top Takeaways

The economy is steady but under strain.

✅ Housing activity surprised on the upside with prices easing
✅ Coincident data still signals ongoing growth
❌ Leading indicators remain firmly negative
❌ Manufacturers are squeezed by higher costs and slower wage growth

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