The latest Conference Board Leading Economic Index (LEI) for September was down 0.4% from the August final figure of 116.4.

The Conference Board Leading Economic Index® (LEI)for theU.S. decreased by 0.4 percent in September 2022 to 115.9 (2016=100), after remaining unchanged in August. The LEI is down 2.8 percent over the six-month period between March and September 2022, a reversal from its 1.4 percent growth over the previous six months.

“The US LEI fell again in September and its persistent downward trajectory in recent months suggests a recession is increasingly likely before yearend,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “The six-month growth rate of the LEI fell deeper into negative territory in September, and weaknesses among the leading indicators were widespread. Amid high inflation, slowing labor markets, rising interest rates, and tighter credit conditions, The Conference Board forecasts real GDP growth will be 1.5 percent year-over-year in 2022, before slowing further in the first half of next 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.

(Click on image to enlarge)

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.

(Click on image to enlarge)

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.

(Click on image to enlarge)

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:

(Click on image to enlarge)

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.

(Click on image to enlarge)

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.

(Click on image to enlarge)

More By This Author:

Existing-Home Sales: Down 1.5% in September
Philly Fed Mfg Index: Activity Remains Negative In October
America's Driving Habits As Of August 2022