Conference Board Leading Economic Index Increased In April

The latest Conference Board Leading Economic Index (LEI) for April increased to 112.1 from 111.9 in March.

The Conference Board LEI for the U.S. increased in April. The most recent gain was fueled by positive contributions from stock prices, the Leading Credit Index™ (inverted), and consumer expectations for business conditions. In the six-month period ending in April 2019, the leading economic index increased 0.6 percent (about a 1.3 percent annual rate), much slower than the growth of 2.1 percent (about a 4.3 percent annual rate) during the previous six months. However, the strengths among the leading indicators became more widespread than weaknesses.

The Conference Board CEI for the U.S., a measure of current economic activity, edged up in April. The coincident economic index rose 0.7 percent (about a 1.3 percent annual rate) between October 2018 and April 2019, slower than the growth of 1.2 percent (about a 2.3 percent annual rate) over the previous six months. The strengths among the coincident indicators have remained widespread, with three out of four components advancing over the past six months. The lagging economic index declined last month. As a result, the coincident-to-lagging ratio increased. Real GDP expanded at a 3.2 percent annual rate in the first quarter of the year, after increasing at a 2.2 percent annual rate in the last quarter of 2018. [Full notes in PDF]

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.

Conference Board's LEI

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

The US LEI rose in April, the third consecutive increase, with a majority of the leading indicators making positive contributions,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “Stock prices, financial conditions, and consumers’ outlook on the economy buoyed the US LEI, although the manufacturing sector showed continuing weakness. The Conference Board expects economic growth to moderate toward 2 percent by year end. The current expansion will enter its 11th year in July, becoming the longest expansion in US history.”

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.

Smoothed LEI

As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. 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.