Misleading Leading Indicators

by: ChangeWave Research

By Paul Carton

Something all too usual happened during trading hours one day recently.  A misleading economic report ignited a 400 point move in the Dow. What made this one stand out, however, was that it was a 400 point rally.

It started the moment The Conference Board released its Leading Indicators Index for September, which showed a surprising 0.30 point improvement. The stock market rally that immediately occurred provides a showcase for how outdated economic statistics can mislead investors.

The Conference Board Index showed that 6 of their ten leading indicators improved during the month of September, and 4 got worse. But a closer look at the "improved" indicators shows that two didn’t really improve at all.

Misled Investors

The first misleading indicator was the Money Supply, which only rose because the Federal Reserve flooded the money supply in September due to the credit crisis. As economist Ian Shepherdson quickly pointed out to the Washington Post, the September leading indicators were helped by "A one-time jump in the money supply as the federal government undertook a series of expensive bailouts.”

The second misleading indicator was the Index of Consumer Expectations, which also appeared to shoot up in September. But the survey on which it was based, was conducted primarily in the first half of September, when consumers were still feeling pretty good about the drop in oil prices.

Here at ChangeWave we picked up a similar pop in consumer sentiment way back in August, but by the second half of September our ChangeWave survey had uncovered the worst drop in consumer confidence we'd ever seen. On September 30th, we reported, “In another stark sign of dwindling consumer confidence, nearly two-thirds (66%) of respondents think the overall direction of the U.S. economy is going to worsen over the next 90 days – a huge 27-pt jump since August."

In other words, Consumer Expectations had actually suffered a radical decline in the second half of September, but the Conference Board missed it because they relied on survey data gathered primarily in the first half of September.

Misleading Wall Street

Ironically, by the time the Conference Board released their September Index, the survey group that had done the September Consumer Expectations survey (University of Michigan) had already released their preliminary findings for October. And the October Michigan numbers showed the largest drop in overall consumer confidence on record – reconfirming our dire ChangeWave findings.

But that didn’t stop Wall Street from immediately rallying based upon the Conference Board’s five week old September data. If you stop and think about it, that’s as ludicrous as trying to pick the Presidential winner based upon where the polls were 5 weeks ago.

By the time the stock market rally had ended, the Dow was up more than 400 points for the day. But here's the punch line:

If you take away the Conference Board’s two misleading indicators (Money Supply and Consumer Expectations) the Index would have been down for September.

In other words, the Index’s entire 0.30 improvement was because of the Conference Board's Money Supply number (0.45) and their Consumer Expectations number (0.26). All the other variables combined were actually down for the month.


Just a few days later – on October 28th – The Conference Board released its October consumer confidence index which – surprise – was now at an all time record low.

The collapse in consumer confidence represented the single largest one-month decline in the The Conference Board index’s 41 year history.


This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 20,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on ChangeWave, or to sign up for real-time alerts email on the hottest technologies and companies, click here.