The latest Conference Board Leading Economic Index (LEI) for November increased fractionally to 111.8 from a revised 111.6 in October. The Coincident Economic Index (CEI) came in at 104.9, up from 104.7 the previous month.

The Conference Board LEI for the U.S. increased slightly in November. Positive contributions from building permits, the ISM® New Orders Index, the yield spread and consumer expectations for business conditions more than offset the negative contributions from weekly initial claims for unemployment insurance (inverted), stock prices and the average workweek. In the six-month period ending November 2018, the leading economic index increased 2.2 percent (about a 4.4 percent annual rate), slower than the growth of 2.9 percent (about a 5.9 percent annual rate) during the previous six months. However, the strengths among the leading indicators continue to be more widespread than the weaknesses.

The Conference Board CEI for the U.S., a measure of current economic activity, also increased in November. The coincident economic index rose 1.3 percent (about a 2.5 percent annual rate) between May and November 2018, faster than the growth of 0.9 percent (about a 1.8 percent annual rate) for the previous six months. Also, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index continued to increase, but at a faster rate than the CEI. As a result, the coincidentto-lagging ratio is down slightly. Real GDP expanded at a 3.5 percent annual rate in the third quarter, after increasing 4.2 percent (annual rate) in the second 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.

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

“The LEI increased slightly in November, but its overall pace of improvement has slowed in the last two months,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “Despite the recent volatility in stock prices, the strengths among the leading indicators have been widespread. Solid GDP growth at about 2.8 percent should continue in early 2019, but the LEI suggests the economy is likely to moderate further in the second half of 2019.”

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. 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:

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 is also a leading indicator of recessions.