Conference Board Leading Economic Index Declined in August, Disappoints Expectations

The Latest Conference Board Leading Economic Index (LEI) for August decreased 0.2 percent to 124.1 from July's 124.3 and a downward revision was made to June's number. The latest indicator value came in below the 0.1 month-over-month percent forecast by Investing.com.

Here is an overview from the LEI technical press release:

The Conference Board LEI for the U.S. declined in August. Large negative contributions from average weekly manufacturing hours and new orders, more than offset positive contributions from the financial components. In the six-month period ending August 2016, the leading economic index increased 0.9 percent (about a 1.8 percent annual rate), faster than the growth of 0.2 percent (about a 0.3 percent annual rate) during the previous six months. However, the weaknesses and strengths among the leading indicators are somewhat balanced. [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.

Conference Board's LEI

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

"While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "Although strengths and weaknesses among the leading indicators are roughly balanced, positive contributions from the financial indicators were more than offset by weakening of nonfinancial indicators, such as leading indicators of labor markets, suggesting some risks to growth persist."

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 from Peak

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 gauge of recession risk.

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:

Smoothed LEI