Conference Board Leading Economic Index: Increase in March
April 21, 2016
by Jill Mislinski
The Latest Conference Board Leading Economic Index (LEI) for March is now available. The index increased 0.2 percent to 123.4 from February's revised 123.1 and revisions were made to four of the last six months. The latest indicator value came in below the 0.4 percent forecast by Investing.com.
Here is an overview from the LEI technical press release:
The Conference Board LEI for the U.S. increased in March, after declining for the prior three consecutive months. Positive contributions from the financial components more than offset the large decline in building permits. In the six-month period ending March 2016, the leading economic index increased 0.7 percent (about a 1.3 percent annual rate), slower than the growth of 1.5 percent (about a 3.0 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators remained balanced with its weaknesses. [Full notes in PDF]
Here is a chart of the LEI series with documented recessions as identified by the NBER.
For additional perspective on this indicator, see the latest press release, which includes this overview:
"With the March gain, the U.S. LEI’s six-month growth rate improved slightly but still points to slow, although not slowing, growth in the coming quarters," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "Rebounding stock prices were offset by a decline in housing permits, but nonetheless there were widespread gains among the leading indicators. Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016."
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 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.
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: