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Conference Board Leading Economic Index "Picked Up Again in July"

August 18, 2016

by Jill Mislinski

The Latest Conference Board Leading Economic Index (LEI) for July increased 0.4 percent to 124.3 from June's revised 123.8 (previously 123.7) and an upward revision was made to May's number. The latest indicator value came in above the 0.3 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. increased for the second consecutive month in July. Positive contributions from hours worked in manufacturing, initial claims for unemployment insurance (inverted) and financial subcomponents more than offset the negative contribution from consumer expectations for business conditions. In the six-month period ending July 2016, the leading economic index increased 1.1 percent (about a 2.1 percent annual rate), faster than the growth of 0.2 percent (about a 0.3 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators became more widespread. [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:

"The U.S. LEI picked up again in July, suggesting moderate economic growth should continue through the end of 2016," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "There may even be some moderate upside growth potential if recent improvements in manufacturing and construction are sustained, and average consumer expectations don't deteriorate further."

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