Conference Board Leading Economic Index Up in August
The latest Conference Board Leading Economic Index (LEI) August was up 0.9% from the July final figure of 117.1 and at another record high.
The Conference Board LEI for the U.S. increased sharply in August, fueled by positive contributions from all components except for consumer expectations for business conditions and average weekly manufacturing hours. In the six-month period ending August 2021, the leading economic index increased 6.4 percent (about a 13.1 percent annual rate), up sharply from 3.4 percent (about a 6.9 percent annual rate) over the previous six months. In addition, the strengths among the leading indicators remained widespread.
The Conference Board CEI for the U.S., a measure of current economic activity, increased slightly in August. The coincident economic index rose 2.8 percent (about a 5.7 percent annual rate) between February and August 2021, much faster than the growth of 1.2 percent (about a 2.4 percent annual rate) over the previous six months. Also, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index continued to increase, but at a slower pace than the CEI. As a result, the coincident-to-lagging ratio is up slightly. Real GDP expanded at a 6.6 percent annual rate in the second quarter of the year, after increasing 6.3 percent (annual rate) in the first quarter. More
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.
For additional perspective on this indicator, see the latest press release, which includes this overview:
NEW YORK, September 23, 2021…The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 0.9 percent in August to 117.1 (2016 = 100), following a 0.8 percent increase in July and a 0.6 percent increase in June.
“The U.S. LEI rose sharply in August and remains on a rapidly rising trajectory,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “While the Delta variant—alongside rising inflation fears—could create headwinds for labor markets and the consumer spending outlook in the near term, the trend in the LEI is consistent with robust economic growth in the reminder of the year. Real GDP growth for 2021 is expected to reach nearly 6.0 percent year-over-year, before easing to a still-robust 4.0 percent for 2022.”
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
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Based on suggestions from Neile Wolfe of Wells Fargo Advisors 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 a 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. Here is a twelve-month smoothed out version, which further eliminates the whipsaws:
The Conference Board also includes its Coincident Economic Index (CEI) in each release. It measures current economic activity and is made up of four components: nonagricultural payroll, personal income less transfer payments, manufacturing and trade sales, and industrial production. Based on observations, when the LEI begins to decline, the CEI is still rising. Here’s a chart including both the CEI and LEI.
Here is a chart of the LEI/CEI ratio, which perhaps has been a leading indicator of recessions. We count the lead time as the number of months that the ratio has been declining prior to a recession. There have been times where the ratio has been in decline for several months without a recession.