The latest Conference Board Leading Economic Index (LEI) for June was up 0.7% from the May final figure of 114.3 and at another record high.

The Conference Board LEI for the U.S. continued to rise in June. Most of its underlying components made positive contributions, except for building permits and average weekly manufacturing hours. The leading economic index increased 5.0 percent (about a 10.3 percent annual rate) during the first half of 2021, slower than the growth of 6.6 percent (about a 13.7 percent annual rate) during the second half of 2020. In addition, the strengths among the leading indicators remained widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, also improved in June. The coincident economic index rose 2.4 percent (about a 4.9 percent annual rate) between December 2020 and June 2021, down from the growth of 4.1 percent (about an 8.5 percent annual rate) during the previous six months. However, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index remained unchanged while the CEI increased. As a result, the coincidentto-lagging ratio rose. Real GDP expanded at a 6.4 percent annual rate in the first quarter of 2021, up from 4.3 percent (annual rate) in the fourth quarter of last year. 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, July 22, 2021…The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 0.7 percent in June to 115.1 (2016 = 100), following a 1.2 percent increase in May and a 1.3 percent increase in April.

“June’s gain in the U.S. LEI was broad-based and, despite negative contributions from housing permits and average workweek, suggests that strong economic growth will continue in the near term,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “While month-over-month growth slowed somewhat in June, the LEI’s overall upward trend—which started with the end of the pandemic-induced recession in April 2020—accelerated further in Q2. The Conference Board still forecasts year-over-year real GDP growth of 6.6 percent for 2021 and a healthy 3.8 percent for 2022.”

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 perhaps has been a leading indicator of recessions. We count the lead time as the number of months that the ratio has been declining prior to a recession. There have been times where the ratio has been in decline for several months without a recession.