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Conference Board Index Of Leading Economic Indicators
For the US, growth was strong in August and remains on a strong growth trajectory. Strong gains among major indices have been widespread in recent months.
U.s. Leading Economic Indicators Improve Again In December
The Bord Leading Economic Index® (LEI) for the US rose sharply in August and continues to rise. Strong gains among major indices have been widespread in recent months. The increase in August was due to the positive contribution of all components of the LEI, in addition to consumer expectations regarding business conditions and average weekly hours worked. The LEI is an indicator of the economic cycle over the next six to nine months. As the current wave of infections recedes in the coming weeks and months, key near-term growth drivers tracked by the LEI suggest that economic growth should remain steady into the new year. While the delta option – along with rising inflation concerns – could create headwinds for labor markets and the outlook for consumer spending in the near term, the trend in the LEI is consistent with strong year-over-year economic growth. Real GDP growth is expected to be around 6.0% annually in 2021, before picking up to around 4.0% in 2022. The next edition of The Conference Board® United States Economic Leaders Index for October 21, 2021 is available here. LEI databases and related Business Cycle Indices (BCIs) are available here.
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The Conference Board’s Leading Economic Index® (LEI) for the United States continued to improve in August, but the index continued to point to a recession…
The Conference Board’s Leading Economic Index® (LEI) for the US fell 4.4% in April, after falling 7.4% in March.
U.s. Leading Economic Indicators Index Rises Again In January
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The Conference Board Leading Economic Index® (LEI) for the United States has long been recognized as a reliable leading indicator of a recession, and recent data suggests that the LEI signals an impending recession. In fact, based on recent LEI readings, the Conference Board predicts that economic weakness will intensify in the coming months with a recession in late 2022 or early 2023 spreading across the entire US economy. information. Why the LEI matters The LEI is made up of 10 indicators covering a wide range of economic activity, including job growth, housing starts and stock prices. The index is designed to provide a broad picture of the state of the economy and can be used to predict turning points in the business cycle. The LEI serves as an indicator of turning points because, as a composite index, it summarizes the consensus of forward-looking indicators from various sectors of economic activity. On average, the LEI peaks 11-12 months before the peak of the business cycle (Chart 1). This means that by monitoring the LEI, we can have an early indication of when a recession might hit. The latest data shows that the LEI peaked in February 2022 and has been on a downward trend since then. However, it may take some time to recognize when an LEI is peaking. For example, if the LEI reached its last high in February 2022, the top would not be definitively recognized until the end of the year. This recognition period can last up to six months. Chart 1: LEI declines before recession, with LEI Final Peak in February 2022 Note: Recession periods are shaded and peak and trough dates are shown at the top of the chart. Negative numbers on the chart represent the lead time of the indicator before the corresponding peak. A more timely indicator: the six-month reversal When the US LEI falls more than 4 percent over a six-month period, it is moving into bearish territory. One way to monitor the LEI is to look at the six-month changes in the index (Chart 2). This measure tells us whether the economy is gaining or losing momentum and can be used to predict changes in direction. The index’s six-month growth rate is a measure of the length and depth of the index’s recent decline and indicates whether the economy may reverse course and enter a recession. For example, the six-month LEI growth rate fell below zero in May 2022 (-1.5 percent year-on-year) and has continued to deteriorate since then. According to the latest available data, shown in Chart 2, this rate of change is -6.3 percent, indicating an increasing likelihood of a recession. This large six-month decline in the LEI cannot be attributed to randomness in the data because this negative rate of change is already greater than the average decline seen in the past (ie, the six-month average negative change is approximately -4.0 percent ). This is important because it signals that the economy is losing momentum, and the loss of momentum is enough to send the economy into recession. Chart 2: Six-Month Growth Dips Into Negative Ground Ahead Of Slowdown And Recession Spread Indicators Improve Signal. While tracking six-monthly changes in the LEI is a good way to gauge whether a recession is on the way, it’s not perfect. Such negative rates have occurred seven times since 1959 without a recession immediately following (Chart 2). Historically, declines in the range of -0.5 to -2.4 percent occurred three times in October 1966, January 1996, November 1998, December 2002, and the 2010s, and may be related to significant slowdowns in economic growth. It just goes to show that just looking at the growth rate of the index can give wrong indications and predictions that are not always accurate. The LEI signal can be improved by taking into account a metric called “diffusion”. Diffusion ratios measure how widespread economic activity is across various sectors and types of economic activity (eg consumers, housing, financial markets, etc.). Diffusion tells us whether the economy is really weakening, or whether there are only isolated pockets of weakness that do not lead to a broad reduction in overall economic activity across the board. Chart 3 shows the LEI margin index over six months. If all elements of the LEI increase in the last six months, the index is 100 percent. If none of the components are increasing, it returns 0. Values in the top (bottom) 50 percent indicate that most components of the LEI have increased (fallen) over the past six months. As with the six-month growth rate, the LEI diffusion index is sensitive to slowdowns as well as recessions, and exhibits several periods in which most components of the index showed weakness that did not extend into a recession. Chart 3: Half-year LEI margin index slips below 50 as economy warns of slower growth. And when we look at all these indicators together, it becomes clear that the US economy is facing an inevitable recession.