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Conference Board Leading Economic Index Sees Fractional Decline in July

August 20, 2015

by Doug Short

The Latest Conference Board Leading Economic Index (LEI) for July is now available. The index dropped 0.2 percent, which follows a 0.6 percent May increase. The latest indicator value came in below the 0.2 percent forecast by Investing.com.

Here is an overview from the LEI press release:

The Conference Board LEI for the U.S. decreased slightly in July, primarily the result of a large decline in building permits. In the six-month period ending July 2015, the leading economic index increased 1.7 percent (about a 3.5 percent annual rate), slower than its growth of 2.4 percent (about a 4.8 percent annual rate) over the previous six months. However, the strengths among the leading indicators remain more widespread than the weaknesses. [Full notes in PDF]

Here is a chart of the LEI series with documented recessions as identified by the NBER.

Conference Board's LEI

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

"The U.S. LEI fell slightly in July, after four months of strong gains. Despite a sharp drop in housing permits, the U.S. LEI is still pointing to moderate economic growth through the remainder of the year," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "Current conditions, measured by the coincident economic index, have been rising moderately but steadily, driven by rising employment and income, and even industrial production has improved in recent months."

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.