CB Leading Economic Index: Continued Rise In February
The latest Conference Board Leading Economic Index (LEI) for February was up 0.2% from the January final figure of 110.3.
The Conference Board LEI for the U.S. increased again in February. Positive contributions from weekly initial claims for unemployment insurance (inverted), the ISM® New Orders Index and the financial indicators more than offset the large declines in building permits and average weekly hours. In the six-month period ending in February 2021, the leading economic index increased 3.8 percent (about a 7.7 percent annual rate), a reversal from the decline of 4.8 percent (about - 9.4 percent annual rate) over the previous six months. In addition, the strengths among the leading indicators have remained very widespread.
The Conference Board CEI for the U.S., a measure of current economic activity, declined slightly in September. In the six-month period between August 2020 and February 2021, the coincident economic index rose 1.2 percent (about a 2.4 percent annual rate), after declining 5.2 percent (about a - 10.2 percent annual rate) over the previous six months. Also, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index unlike the coincident index, increased in February. As a result, the coincident-to-lagging ratio is down slightly. Real GDP expanded at a 4.1 percent annual rate in the last quarter of 2020, after increasing 33.4 percent (annual rate) in the third 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, March 18, 2021…The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in February to 110.5 (2016 = 100), following a 0.5 percent increase in January and a 0.4 percent increase in December.
“The U.S. LEI continued rising in February, suggesting economic growth should continue well into this year,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Indeed, the acceleration of the vaccination campaign and a new round of large fiscal supports are not yet fully reflected in the LEI. With those developments, The Conference Board now expects the pace of growth to improve even further this year, with the U.S. economy expanding by 5.5 percent in 2021.”
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 has also been a leading indicator of recessions.