CB Leading Economic Index: Another Sharp Rise In November

The latest Conference Board Leading Economic Index (LEI) for November was up 1.1% from the October final figure of 118.6.

The Conference Board LEI for the U.S. increased substantially in November, fueled by positive contributions from eight of ten components. In the six-month period ending November 2021, the leading economic index increased 4.6 percent (about a 9.5 percent annual rate), somewhat slower than the growth of 4.9 percent (about a 10.1 percent annual rate) over the previous six months. However, strengths among the leading indicators remained widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, also improved in November. The coincident economic index rose 2.0 percent (about a 4.1 percent annual rate) between May and November 2021, slightly faster than the growth of 1.6 percent (about a 3.1 percent annual rate) over the previous six months. Additionally, all four CEI components advanced over the past six months. The lagging economic index edged down in November, while the CEI improved. As a result, the coincident-to-lagging ratio increased. Real GDP expanded at a 2.1 percent annual rate in the third quarter of the year, after increasing 6.7 percent (annual rate) in the second quarter. More

Here is a log-scale chart of the LEI series with documented recessions as identified by the NBER. The use of a log scale gives us a better sense of the relative sizes of peaks and troughs than a more conventional linear scale.

For additional perspective on this indicator, see the latest press release, which includes this overview:

NEW YORK, December 20, 2021…The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 1.1 percent in November to 119.9 (2016 = 100), following a 0.9 percent increase in October and a 0.3 percent increase in September.

“The U.S. LEI rose sharply again in November, suggesting the current economic expansion will continue into the first half of 2022,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Inflation and continuing supply chain disruptions, as well as a resurgence of COVID-19, pose risks to GDP growth in 2022. Still, the economic impact of these risks may be contained. The Conference Board forecasts real GDP growth to strengthen in Q4 2021 to about 6.5 percent (annualized rate), before moderating to a still healthy rate of 2.2 percent in Q1 2022.”

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.

LEI And Its Six-Month Smoothed Rate Of Change

Based on suggestions from Neile Wolfe of Wells Fargo Advisors and Dwaine Van Vuuren of RecessionAlert, we can tighten the recession lead times for this indicator by plotting a smoothed six-month rate of change to further enhance our use of the Conference Board's LEI as a gauge of recession risk.

As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. Here is a twelve-month smoothed out version, which further eliminates the whipsaws:

The Conference Board also includes its Coincident Economic Index (CEI) in each release. It measures current economic activity and is made up of four components: nonagricultural payroll, personal income less transfer payments, manufacturing and trade sales, and industrial production. Based on observations, when the LEI begins to decline, the CEI is still rising. Here's a chart including both the CEI and LEI.

Here is a chart of the LEI/CEI ratio, which perhaps has been a leading indicator of recessions. We count the lead time as the number of months that the ratio has been declining prior to a recession. There have been times where the ratio has been in decline for several months without a recession.