The latest Conference Board Leading Economic Index (LEI) decreased in July to its lowest level since April 2020. The index fell 0.6% from the previous month to 100.4, marking its fifth consecutive monthly decline.
“The LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals recession ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “In July, weakness was widespread among non-financial components. A sharp deterioration in new orders, persistently weak consumer expectations of business conditions, and softer building permits and hours worked in manufacturing drove the decline, together with the still-negative yield spread. These data continue to suggest headwinds in economic growth going forward. The Conference Board expects US real GDP growth to slow over the next few quarters as consumers and businesses continue cutting spending and investments. US real GDP is expected to expand at a pace of 0.6 percent annualized in Q3 2024 and 1 percent annualized in Q4.” More
Background on the Conference Board Leading Economic Index® (LEI)
The LEI is a composite index of several indicators. It is a predictive variable that anticipates, or leads, turning points in the business cycle and anticipates where the economy is heading. Since the LEI is comprised of multiple components, it is meant to provide a clearer picture as it is able to smooth out volatility associated with individual components. The ten components of Conference Board LEI include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.
Here is a chart of the LEI series with documented recessions as identified by the NBER. Note the peaks of the index preceding each of the recessions and the troughs occurring near the end of each recession.
Leading Economic Index and Recession Risk
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. We are currently 14.8% off the 2021 peak. The chart also calls out the number of months between the previous peak and official recessions. On average, there is usually 10.6 months between a peak and a recession. We are currently 31 months off from the 2021 peak.
