Conference Board Leading Economic Index: 'Increased Slightly'

by: Doug Short

The Conference Board Leading Economic Index (LEI) for October was released Wednesday morning. The index increased 0.2 percent to 96.0 (2004 = 100), following a 0.5 percent increase in September, and a -0.4 percent decrease in August. The consensus had correctly expected a 0.2 percent increase. "Increased slightly" was the key phrase in yesterday's press release, which differs little from last month's characterization of the index as "Fluctuating around a slow-growth trend."

Here is the overview of yesterday's release from the LEI technical notes:

The Conference Board LEI for the U.S. increased for the second consecutive month in October. Positive contributions from the interest rate spread, the Leading Credit Index™ (inverted) and initial claims for unemployment insurance (inverted) offset the negative contributions from building permits, consumer expectations for business conditions and the ISM® new orders index. In the six-month period ending October 2012, the leading economic index increased 0.5 percent (about a 1.0 percent annual rate), much slower than the growth of 1.8 percent (about a 3.7 percent annual rate) during the previous six months. The strengths and weaknesses among the leading indicators remain equally balanced.
[Full notes in PDF format]

Here is a chart of the LEI series with documented recessions as identified by the NBER.

And here is a closer look at this indicator since 2000. We can more readily see that the recovery from the 2000 trough has been quite week in 2012.

For a more details on the latest data, here is an excerpt from the press release:

Says Ataman Ozyildirim, economist at The Conference Board: "The U.S. LEI increased slightly in October, the second consecutive increase. The LEI still points to modestly expanding economic activity in the near term. Over the last six months, improvements in the residential construction and financial components of the LEI have offset weak consumer expectations, manufacturing new orders and labor market components. Meanwhile, the coincident economic index also increased slightly in October." Says Ken Goldstein, economist at The Conference Board: "Based on current trends, the economy will continue to expand modestly through the early months of 2013. Hurricane Sandy, which is not yet fully reflected in the LEI, will likely adversely affect consumer spending and home building in the short-term, but it’s too soon to gauge the net impact. In addition, the outcome of the fiscal cliff debates is another factor which could alter the outlook."

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.

Here is a look at the rate of change, which gives a closer look at behavior of the index in relation to recessions.

And finally, here is the same snapshot, zoomed in to the data since 2000.

Check back next month for an updated analysis.