Conference Board Leading Economic Index Unchanged In May

The latest Conference Board Leading Economic Index (LEI) for May remained at 111.8, unchanged from the April figure.

The Conference Board LEI for the U.S. remained unchanged in May. Positive contributions from consumers’ outlook and the Leading Credit Index™ (inverted) were offset by negative contributions from stock prices, the ISM® New Orders Index, and initial claims for unemployment insurance (inverted). In the six-month period ending May 2019, the leading economic index increased 0.3 percent (about a 0.5 percent annual rate), much slower than the growth of 2.2 percent (about a 4.4 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators became less widespread over this period.

The Conference Board CEI for the U.S., a measure of current economic activity, increased in May. The coincident economic index rose 0.7 percent (about a 1.3 percent annual rate) between November 2018 and May 2019, which is about half of the growth of 1.3 percent (about a 2.5 percent annual rate) over the previous six months. However, the strengths among the coincident indicators have remained more widespread than weaknesses. The lagging economic index declined in the last two months, while the CEI has been improving. As a result, the coincident-tolagging ratio increased. Real GDP expanded at a 3.1 percent annu [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 was unchanged in May, following three consecutive increases,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “Positive contributions from financial conditions and consumers’ outlook offset the weakness in stock prices and the manufacturing sector. The yield spread’s contribution to the LEI was neither positive nor negative. While the economic expansion is now entering its eleventh year, the longest in US history, the LEI clearly points to a moderation in growth towards 2 percent by year end.”

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.