The latest Conference Board Leading Economic Index (LEI) for August was down 0.3% from the July final figure of 116.2.

The Conference Board Leading Economic Index® (LEI)for theU.S. decreased by 0.3 percent in August 2022 to 116.2 (2016=100), after declining by 0.5 percent in July. The LEI fell 2.7 percent over the six-month period between February and August 2022, a reversal from its 1.7 percent growth over the previous six months.

“The US LEI declined for a sixth consecutive month potentially signaling a recession,” Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “Among the index’s components, only initial unemployment claims and the yield spread contributed positively over the last six months—and the contribution of the yield spread has narrowed recently.”

“Furthermore, labor market strength is expected to continue moderating in the months ahead. Indeed, the average workweek in manufacturing contracted in four of the last six months—a notable sign, as firms reduce hours before reducing their workforce. Economic activity will continue slowing more broadly throughout the US economy and is likely to contract. A major driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures. The Conference Board projects a recession in the coming quarters.” 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 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.

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