The latest Conference Board Leading Economic Index (LEI) for February increased to 111.5 from 111.3 in January. The Coincident Economic Index (CEI) came in at 105.9, up from 105.7 the previous month.

NOTE: The partial federal government shutdown that occurred in late December and January continues to have an impact on delays of some of the underlying components data that are used to produce estimates of the composite indexes. Please note that building permits data is still not available for February 2019. The Conference Board has used its standard procedure of statistical imputations to fill in the missing data in order to publish the Leading Economic Index.

The Conference Board LEI for the U.S. increased for the first time since September 2018. Positive contributions from all the financial components along with consumer expectations for business conditions more than offset the negative contributions from average weekly manufacturing hours and initial claims for unemployment insurance (inverted). In the six-month period ending February 2019, the leading economic index increased 0.5 percent (about a 1.1 percent annual rate), much slower than the growth of 2.5 percent (about a 5.1 percent annual rate) over the previous six months. In addition, the strengths among the leading indicators have become much less widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, increased in February. The coincident economic index rose 1.1 percent (about a 2.3 percent annual rate) between August 2018 and February 2019, slightly slower than the growth of 1.4 percent (about a 2.7 percent annual rate) over 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 last month, and with the CEI’s increase, the coincident-to-lagging ratio improved slightly in February. Real GDP expanded at a 2.6 percent annual rate in the fourth quarter of 2018, after increasing 3.4 percent (annual rate) in the third quarter. [Full notes in PDF]

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.

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For additional perspective on this indicator, see the latest press release, which includes this overview:

“The US LEI increased in February for the first time in five months,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “February’s improvement was driven by accommodative financial conditions and a rebound in stock prices, which more than offset weaknesses in the labor market components. Despite the latest results, the US LEI’s growth rate has slowed over the past six months, suggesting that while the economy will continue to expand in the near-term, its pace of growth could decelerate by year end.”

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.

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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.

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As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. Here is a twelve month smoothed out version, which further eliminates the whipsaws:

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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.

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Here is a chart of the LEI/CEI ratio, which is also a leading indicator of recessions.

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