Conference Board Leading Economic Index Unchanged In November

The latest Conference Board Leading Economic Index (LEI) for November was unchanged from the revised October figure of 111.6.

The Conference Board LEI for the U.S. was unchanged in November after three consecutive declines. The large positive contribution from stock prices was offset by the large negative contribution from the ISM® New Orders Index. In the six-month period ending November 2019, the leading economic index decreased 0.2 percent (about a -0.4 percent annual rate), a reversal from its growth of 0.3 percent (about a 0.5 percent annual rate) over the previous six months. However, the strengths among the LEI’s components remain slightly more widespread than the weaknesses.

The Conference Board CEI for the U.S., a measure of current economic activity, increased in November. The coincident economic index rose 0.9 percent (about a 1.9 percent annual rate) between May and November 2019, moderately faster than the growth of 0.6 percent (about a 1.1 percent annual rate) over the previous six months. In addition, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index continued to increase almost at the same pace as the CEI. As a result, the coincident-to-lagging ratio remained unchanged. Real GDP expanded at a 2.1 percent annual rate in the third quarter, after increasing 2.0 percent (annual rate) in the second quarter. [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.

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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 November after three consecutive monthly declines. Strength in residential construction, financial markets, and consumers’ outlook offset weakness in manufacturing and labor markets,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “While the six-month growth rate of the LEI remains slightly negative, the Index suggests that economic growth is likely to stabilize around 2 percent in 2020.”

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.

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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.

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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:

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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.

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