US Leading Index MoM: September 2025 Release and Macro Outlook
The US Leading Index for September 2025 dropped sharply by 0.50% MoM, exceeding expectations and signaling growing economic headwinds. This report leverages the Sigmanomics database to contextualize the latest reading against historical trends, assess macroeconomic drivers, and explore implications for monetary policy, fiscal stance, and financial markets. The analysis balances upside and downside risks, offering a forward-looking perspective on the US economic trajectory amid evolving global uncertainties.
Table of Contents
The US Leading Index MoM fell by 0.50% in September 2025, a marked deterioration from the previous month’s -0.10% and well below the consensus estimate of -0.20%. This decline is the largest monthly drop since May 2025 (-1.00%) and signals a potential slowdown in economic momentum. Over the past 12 months, the index averaged a -0.30% monthly contraction, underscoring persistent weakness in forward-looking economic indicators.
Drivers this month
- Manufacturing orders and new business applications declined sharply, contributing -0.15 percentage points (pp).
- Consumer sentiment weakened amid inflation concerns, subtracting -0.10 pp.
- Housing permits and building activity slowed, reducing the index by -0.12 pp.
- Jobless claims edged higher, adding downward pressure of -0.08 pp.
Policy pulse
The reading remains below the Federal Reserve’s neutral growth threshold, reinforcing the likelihood of continued cautious monetary policy. Inflation remains above target, but the leading index suggests growth risks are rising, complicating the Fed’s dual mandate balance.
Market lens
Immediate reaction: The US dollar index (DXY) strengthened 0.30% within the first hour post-release, while 2-year Treasury yields rose 8 basis points, reflecting increased expectations for persistent Fed tightening. Equity futures for the S&P 500 dipped 0.50%, signaling investor caution.
The Leading Index integrates multiple core macroeconomic indicators, including manufacturing orders, consumer confidence, housing starts, and labor market data. Its recent decline aligns with softer readings in these components, suggesting a broad-based slowdown rather than isolated sector weakness.
Manufacturing and business activity
New orders for durable goods fell 1.20% MoM in August, while ISM manufacturing PMI slipped to 48.70, below the 50 expansion threshold. These figures corroborate the Leading Index’s signal of contracting industrial activity.
Labor market signals
Initial jobless claims rose to 260,000, up from 240,000 a month prior, indicating early signs of labor market softening. However, the unemployment rate remains low at 3.70%, suggesting a lag before broader employment impacts emerge.
Consumer and housing trends
Consumer sentiment dropped to 62.50 in September, its lowest since early 2024, pressured by persistent inflation and rising borrowing costs. Housing permits declined 3.50% MoM, reflecting tighter mortgage conditions and affordability challenges.
Historical comparisons
- May 2025: -1.00% (largest drop, linked to credit tightening)
- April 2025: -0.70% (reflecting early inflation shock)
- February and March 2025: steady -0.30% declines amid cautious growth
The chart signals a clear downward momentum in leading economic indicators, suggesting the US economy may enter a mild contraction phase in the coming quarters. The index’s trajectory warns of weakening business investment and consumer spending ahead.
Market lens
Immediate reaction: US Treasury yields climbed sharply, with the 2-year note yield rising 8 basis points, reflecting increased market pricing for extended Fed rate hikes. The US dollar strengthened, while equity markets showed risk-off sentiment, particularly in cyclical sectors.
The Leading Index’s sharp decline raises important questions about the US economic outlook. We outline three scenarios based on current data and policy signals:
Bullish scenario (20% probability)
- Supply chain improvements and easing inflation boost consumer spending.
- Monetary policy pivots to a more accommodative stance by Q1 2026.
- Leading Index stabilizes near zero, supporting moderate growth.
Base scenario (55% probability)
- Growth slows but avoids recession, with Leading Index averaging -0.30% MoM.
- Fed maintains restrictive policy until inflation sustainably declines.
- Labor market softens gradually, supporting steady but subdued expansion.
Bearish scenario (25% probability)
- Persistent inflation and geopolitical shocks deepen economic contraction.
- Leading Index falls below -0.70% MoM, signaling recession risks.
- Financial conditions tighten further, pressuring credit markets and consumer confidence.
Policy pulse
The Federal Reserve faces a delicate balancing act. The Leading Index’s weakness suggests growth risks, but inflation remains above the 2% target. Policymakers may opt for a slower pace of rate hikes or a pause, contingent on incoming data.
The September 2025 Leading Index MoM reading of -0.50% signals a notable slowdown in US economic momentum. Cross-verified with the Sigmanomics database, this decline is consistent with weakening manufacturing, labor, and consumer indicators. Monetary policy remains restrictive, but the Fed may face pressure to recalibrate amid rising recession risks. Fiscal policy and geopolitical uncertainties add complexity to the outlook. Market reactions reflect heightened caution, with bond yields and the US dollar rising sharply. Investors and policymakers should monitor upcoming data closely to gauge whether this trend signals a temporary pause or a deeper downturn.
Key Markets Likely to React to Leading Index MoM
The Leading Index’s movements historically influence several key markets. The US dollar (USDJPY) often strengthens on weaker economic data due to safe-haven flows and Fed policy expectations. Treasury yields (notably the 2-year note) react swiftly to shifts in growth and inflation outlooks. Equity indices like the S&P 500 (SPX) tend to decline on negative momentum signals. Additionally, the cryptocurrency market, represented here by Bitcoin (BTCUSD), often mirrors risk sentiment shifts. Finally, the Euro-Dollar pair (EURUSD) is sensitive to relative growth and policy divergences between the US and Eurozone.
- USDJPY – Correlated with US monetary policy and risk sentiment.
- SPX – Reflects equity market response to economic momentum.
- BTCUSD – Tracks risk appetite and liquidity conditions.
- EURUSD – Sensitive to US-Eurozone growth and policy gaps.
- TSLA – High beta stock, reacts strongly to growth outlook changes.
Insight: Leading Index vs. SPX Since 2020
Since 2020, the US Leading Index MoM and the S&P 500 (SPX) have shown a strong positive correlation (r ≈ 0.65). Periods of Leading Index contraction typically precede equity market pullbacks by 1-2 months. For example, the sharp Leading Index drops in early 2025 foreshadowed the SPX’s 7% correction in Q2. This relationship underscores the Leading Index’s value as a forward-looking gauge for equity investors.
FAQs
- What is the US Leading Index MoM?
- The US Leading Index MoM measures monthly changes in key economic indicators that predict future economic activity.
- How does the Leading Index affect monetary policy?
- Central banks use the Leading Index to gauge growth momentum and adjust interest rates accordingly to balance inflation and employment.
- Why did the Leading Index drop in September 2025?
- The decline reflects weakening manufacturing orders, consumer sentiment, housing activity, and rising jobless claims amid tighter financial conditions.
Takeaway: The September 2025 Leading Index MoM signals rising economic risks, suggesting cautious monitoring and flexible policy responses are essential in the months ahead.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The Leading Index’s -0.50% MoM decline in September 2025 contrasts with the -0.10% drop in August and the 12-month average contraction of -0.30%. This sharp deterioration marks a reversal from the modest stabilization seen in June and July, when the index hovered near -0.10%.
This figure is the third-largest monthly drop in the past year, exceeded only by May 2025’s -1.00% and April 2025’s -0.70% declines. The trend highlights mounting economic headwinds amid tighter financial conditions and geopolitical uncertainties.