Courtesy of Doug Short.
The Latest Conference Board Leading Economic Index (LEI) for March is now available. The index rose 0.2 percent, which follows a 0.1 percent February increase (a downward revision from 0.2 percent). The latest number came in below the 0.3 percent forecast by Investing.com.
Here is an overview from the LEI technical notes:
The Conference Board LEI for the U.S. increased again in March. Large positive contributions from initial unemployment claims and the yield spread more than offset the large negative contribution from building permits. In the six-month period ending March 2015, the leading economic index increased 1.8 percent (about a 3.7 percent annual rate), much slower than the growth of 3.3 percent (about a 6.7 percent annual rate) during the previous six months. But the strengths among the leading indicators have remained more widespread than the weaknesses. [Full notes in PDF]
Here is a chart of the LEI series with documented recessions as identified by the NBER.
And here is a closer look at this indicator since 2000. We can more readily see that the recovery from the 2000 trough weakened in 2012 but began trending higher in the latter part of the year.
For additional perspective on this indicator, see the latest press release, which includes this overview:
| “Although the leading economic index still points to a moderate expansion in economic activity, its slowing growth rate over recent months suggests weaker growth may be ahead,” said Ataman Ozyildirim, Economist at The Conference Board. “Building permits was the weakest component this month, but average working hours and manufacturing new orders have also slowed the LEI’s growth over the last six months.” |
For a better understanding of the relationship between the LEI and recessions, the next chart shows the percentage off the previous peak for the index and the number of months between the previous peak and official recessions.
Here is a look at the rate of change, which gives a closer look at behavior of the index in relation to recessions.
And finally, here is the same snapshot, zoomed in to the data since 2000.
LEI and Its Six-Month Moving Average
My friend Neile Wolfe of Wells Fargo Advisors, LLC suggested using a six-month moving average to further enhance our use of the Conference Board’s LEI as gauge of recession risk. Here is a linear chart of the indicator with the moving average. The area chart at the bottom shows the percentage variance of the LEI from that moving average.
As we can see, the LEI drops below its six-month moving average many months in advance of a recession.
