April Rebound Suggests Continuing Economic Expansion

by: Doug Short

The Conference Board Leading Economic Index (LEI) for April was released this morning. The index rose 0.6 percent to 95.0 (2004 = 100), a welcome improvement over the -0.2 percent last month, which was a downward revision from -0.1 percent. The Briefing.com consensus was for a 0.3 percent increase. Today's press release highlights a "continuing economic expansion with some upside potential."

Here first is an overview of today's release from the LEI technical notes:

The Conference Board LEI for the U.S. increased in April after a small decline the month before. Large positive contributions from building permits, initial claims for unemployment insurance (inverted) and all the financial components offset negative contributions from consumer expectations, average workweek in manufacturing and ISM® new orders. In the six-month period ending April 2013, the leading economic index increased 1.7 percent (about a 3.5 percent annual rate), faster than the growth of 0.5 percent (about a 1.1 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have become more widespread.
[Full notes in PDF format]
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Here is a chart of the LEI series with documented recessions as identified by the NBER.

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And here is a closer look at this indicator since 2000. We can more readily see that the recovery from the 2000 trough weakened in 2012 but began trending higher in the latter part of the year.

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

Says Ataman Ozyildirim, economist at The Conference Board: "After a slight decline in March, the U.S. LEI rebounded in April, led by housing permits and the interest rate spread. Labor market conditions also contributed, although consumers' outlook on the economy remains weak. In general, the LEI points to a continuing economic expansion with some upside potential. Meanwhile, the CEI, a measure of current conditions, has returned to a slow growth path, despite declining industrial production in April."

Says Ken Goldstein, economist at The Conference Board: "The index is 3.5 percent higher (annualized) than six months ago, suggesting expansion. However, the biggest risk right now is the adverse impact of cuts in federal spending. The biggest positive factor is the potential for improvement in the recovering housing and labor markets. The biggest unknown is the resiliency in confidence, both consumer and business."
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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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Here is a look at the rate of change, which gives a closer look at behavior of the index in relation to recessions.

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

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Check back next month for an updated analysis.