The latest Conference Board Leading Economic Index (LEI) for March was down 6.7% from the February figure of 111.7.

The Conference Board LEI for the U.S. declined sharply in March. The deterioration was very broad based, with the largest negative contributions coming from weekly initial claims for unemployment insurance (inverted) and stock prices. In the six-month period ending March 2020, the leading economic index decreased 6.6 percent (about a 12.8 percent annual rate), a sharp reversal from the growth of 0.1 percent (about a 0.2 percent annual rate) over the previous six months. In addition, the weaknesses among the leading indicators have become very widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, also declined in March. The coincident economic index decreased 0.3 percent (about a 0.6 percent annual rate) between September 2019 and March 2020, a reversal from its growth of 0.6 percent (about a 1.1 percent annual rate) over the previous six months. The strengths among the coincident indicators have been less widespread over the same time period. The lagging economic index increased in March while CEI declined. As a result, the coincident-to-lagging ratio declined substantially. Real GDP expanded at a 2.1 percent annual rate in both the third and fourth quarters of 2019.

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:

“In March, the US LEI registered the largest decline in its 60-year history,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The unprecedented and sudden deterioration was broad based, with the largest negative contributions coming from initial claims for unemployment insurance and stock prices. The sharp drop in the LEI reflects the sudden halting in business activity as a result of the global pandemic and suggests the US economy will be facing a very deep contraction.”

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 two 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 minus 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.