The latest Conference Board Leading Economic Index (LEI) for December increased to 107.0 from 106.4 in November. The Coincident Economic Index (CEI) came in at 102.8, up from the previous month. Annual benchmark revisions were made.
The Conference Board LEI for the U.S. increased for the third consecutive month in December, fueled by large positive contributions from the ISM® new orders index and financial components. In the second half of 2017, the leading economic index increased 3.1 percent (about a 6.3 percent annual rate), faster than the growth of 2.6 percent (about a 5.2 percent annual rate) during the first half of last year. Also, the strengths among the leading indicators have remained very widespread. [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.
(Click on image to enlarge)
For additional perspective on this indicator, see the latest press release, which includes this overview:
“The U.S. LEI continued rising rapidly in December, pointing to a continuation of strong economic growth in the first half of 2018. The passing of the tax plan is likely to provide even more tailwind to the current expansion,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The gains among the leading indicators have been widespread, with most of the strength concentrated in new orders in manufacturing, consumers’ outlook on the economy, improving stock markets and financial conditions.”
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.
(Click on image to enlarge)
LEI and Its Six-Month Smoothed Rate of Change
Based on suggestions from Neile Wolfe of Wells Fargo Advisors, LLC 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.
(Click on image to enlarge)
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:
(Click on image to enlarge)
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.
(Click on image to enlarge)
Here is a chart of the LEI/CEI ratio, which is also a leading indicator of recessions.
(Click on image to enlarge)
Comments
Log in or sign up to join the conversation.