The Conference Board notes LEI for the U.S. Declined Further in March.

The chart illustrates the so-called 3D’s rule which is a reliable rule of thumb to interpret the duration, depth, and diffusion – the 3D’s – of a downward movement in the LEI. Duration refers to how long-lasting a decline in the index is, and depth denotes how large the decline is. Duration and depth are measured by the rate of change of the index over the last six months. Diffusion is a measure of how widespread the decline is (i.e., the diffusion index of the LEI ranges from 0 to 100 and numbers below 50 indicate most of the components are weakening). The 3D’s rule provides signals of impending recessions 1) when the diffusion index falls below the threshold of 50 (denoted by the black dotted line in the chart), and simultaneously 2) when the decline in the index over the most recent six months falls below the threshold of -4.2 percent. The red dotted line is drawn at the threshold value (measured by the median, -4.2 percent) on the months when both criteria are met simultaneously. Thus, the red dots signal a recession.

LEI Key Points 

• The Conference Board Leading Economic Index® (LEI) for the U.S. fell by 1.2 percent in March 2023 to 108.4 (2016=100), following a decline of 0.5 percent in February. 
• The LEI is down 4.5 percent over the six-month period between September 2022 and March 2023—a steeper rate of decline than its 3.5 percent contraction over the previous six months (March–September 2022).
• The U.S. LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead
• The weaknesses among the index’s components were widespread in March and have been so over the past six months, which pushed the growth rate of the LEI deeper into negative territory. Only stock prices and manufacturers’ new orders for consumer goods and materials contributed positively over the last six months.
• The Conference Board forecasts that economic weakness will intensify and spread more widely throughout the US economy over the coming months, leading to a recession starting in mid-2023.”

Coincident Economic Indicators (CEI) Key Points

• CEI for the U.S. increased by 0.2 percent in March 2023 to 110.2 (2016=100), after also rising 0.2 percent in February. 
• The CEI is now up 0.8 percent over the six-month period between September 2022 and March 2023—slightly lower than the 1.0 percent growth it recorded over the previous six months. 
• The CEI’s component indicators—payroll employment, personal income less transfer payments, manufacturing trade and sales, and industrial production—are included among the data used to determine recessions in the US. Payroll employment’s contribution to the coincident economic index weakened somewhat in March.

Conference Board Leading Economic Index and Component Contributions

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Bob, thanks for this perspective.

How would you gauge what is priced in to equities at the index level?

Using leading models, we come to the conclusion that the market is pricing in about zero EPS growth, whereas LEIs imply an EPS contraction of over 10% pic.twitter.com/jNoaCVd13n

— Ryan Connor (@_RyanRConnor) April 20, 2023

Twitter Discussion of LEI

Just something to consider before going all in on LEI: https://t.co/CAkYREuLP8

— Bob Elliott (@BobEUnlimited) April 20, 2023

"Over the last 40+ years, every time this indicator drops < 0 and stays there for 2+ months we are in a recession 100% hit rate."

What About Earnings?

Bob, thanks for this perspective.

How would you gauge what is priced in to equities at the index level?

Using leading models, we come to the conclusion that the market is pricing in about zero EPS growth, whereas LEIs imply an EPS contraction of over 10% pic.twitter.com/jNoaCVd13n

— Ryan Connor (@_RyanRConnor) April 20, 2023

"Using leading models, we come to the conclusion that the market is pricing in about zero EPS growth, whereas LEIs imply an EPS contraction of over 10%"

S&P 500 Monthly Chart 

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S&P 500 chart courtesy of StockCharts.Com

The market is a coincident indicator of the current sentiment towards stocks. Unlike the conference board, I do not believe it is a leading indicator or anything.

If the stock market is leading, what pray tell was it leading at the top in November of 2007, at the bottom in March of 2009, at the top in February of 2020, at the bottom in March of 2020, etc.?

Curiously, the stock market LEI is in positive territory now. So are new orders of consumer goods. I expect neither to last.

Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

Please note Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

Also note that 70 Percent of Americans are Financially Stressed, 58 Percent Live Paycheck to Paycheck

Fed Chair Jerome Powell has admitted as much.

Sharpest Decline in Money Since 1934

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Finally, please note The Sharpest Money Decline Since 1934

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