Conference Board Leading Economic Index: Slight Increase In March

The latest Conference Board Leading Economic Index (LEI) for March increased to 109.0 from 108.7 in February. The Coincident Economic Index (CEI) came in at 103.4, up from the previous month.

The Conference Board LEI for the U.S. increased again in March. Positive contributions from the yield spread, the ISM® new orders index and expectations for business conditions more than offset the negative contributions from the average workweek and initial claims for unemployment insurance (inverted). In the six-month period ending March 2018, the leading economic index increased 4.3 percent (about an 8.8 percent annual rate), much faster than its growth of 1.9 percent (about a 3.7 percent annual rate) over the previous six months. In addition, the strengths among the leading indicators have remained very widespread.

The Conference Board CEI for the U.S., a measure of current economic activity, increased in March. The coincident economic index increased 1.4 percent (about a 2.8 percent annual rate) between September 2017 and March 2018, faster than its growth of0.8 percent (about a 1.6 percent annual rate) over the previous six months. 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 at about the same pace as the CEI, so the coincident-to-lagging ratio remained unchanged. Real GDP expanded at a 2.9 percent annual rate in the fourth quarter of 2017, after increasing 3.2 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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Conference Board's LEI

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

“The U.S. LEI increased in March, and while the monthly gain is slower than in previous months, its six-month growth rate increased further and points to continued solid growth in the U.S. economy for the rest of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The strengths among the components of the leading index have been very widespread over the last six months. However, labor market components made negative contributions in March and bear watching in the near future.”

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, LLC 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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Smoothed LEI

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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Disclosure: None.

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