The latest Conference Board Leading Economic Index (LEI) for May was up 1.3% from the April final figure of 113 and at a record high.

The Conference Board LEI for the U.S. increased again in May, driven by positive contributions from most of its components. Building permits and new orders for nondefense capital goods excluding aircraft made the only negative contributions. In the six-month period ending May 2021, the leading economic index increased 4.9 percent (about a 9.9 percent annual rate), slower than the 9.4 percent growth (about a 19.7 percent annual rate) posted over the previous six months. The strengths among the leading indicators have remained widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, also improved in May. The coincident economic index grew by 2.0 percent (about a 4.1 percent annual rate) between November 2020 and May 2021, down from 8.2 percent (about a 17.1 percent annual rate) for 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 declined in three out of the past six months, with a sizable decline in May. As a result, the coincident-to-lagging ratio, which is considered a leading indicator, improved. Real GDP expanded at a 6.4 percent annual rate in the first quarter of 2021, up from 4.3 percent
(annual rate) in Q4 2020. 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, June 17, 2021…The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 1.3 percent in May to 114.5 (2016 = 100), following a 1.3 percent increase in April and a 1.4 percent increase in March.

“After another large improvement in May, the U.S. LEI now stands above its previous peak reached in January 2020 (112.0), suggesting that strong economic growth will continue in the near term,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Strengths among the leading indicators were widespread, with initial claims for unemployment insurance making the largest positive contribution to the index; housing permits made this month’s only negative contribution. The Conference Board now forecasts real GDP growth in Q2 could reach 9 percent (annualized), with year over-year economic growth reaching 6.6 percent for 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.