The latest Conference Board Leading Economic Index (LEI) decreased in September to its lowest level since October 2016. The index fell 0.5% from the previous month to 99.7, marking its seventh consecutive monthly decline.
“Weakness in factory new orders continued to be a major drag on the US LEI in September as the global manufacturing slump persists,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Additionally, the yield curve remained inverted, building permits declined, and consumers’ outlook for future business conditions was tepid. Gains among other LEI components were not significant enough to offset weakness among the four gauges mentioned above. Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board expectation for moderate growth at the close of 2024 and into early 2025.“ 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 17.6% 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 33 months off from the 2021 peak.