What is Conference Board Leading Economic Index (LEI) and this implies a coming recession

What is Conference Board Leading Economic Index?

Source: https://www.conference-board.org/topics/us-leading-indicators

About The Conference Board Leading Economic Index® (LEI) for the U.S.: The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle.

There are 10 components that made up The Conference LEI.

The ten components of The Conference Board Leading Economic Index® for the U.S. 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.

The latest LEI update as of 23 Jan 2023:

Chart - LEI trajectory signals a recession

The Conference Board Leading Economic Index®(LEI) for theU.S. decreased by 1.0 percent in December 2022 to 110.5 (2016=100), following a decline of 1.1 percent in November. The LEI is now down 4.2 percent over the six-month period between June and December 2022—a much steeper rate of decline than its 1.9 percent contraction over the previous six-month period (December 2021–June 2022).
“The US LEI fell sharply again in December—continuing to signal recession for the US economy in the near term,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board.“There waswidespread weakness among leading indicators in December, indicating deteriorating conditions for labor markets, manufacturing, housing construction, and financial markets in the months ahead. Meanwhile, the coincident economic index (CEI) has not weakened in the same fashion as the LEI because labor market related indicators (employment and personal income) remain robust. Nonetheless, industrial production— also a component of the CEI—fell for the third straight month. Overall economic activity is likely to turn negative in the coming quarters before picking up again in the final quarter of 2023.”

Observations

LEI has been able to “predict” the recent recessions accurately since 2000 (as per the chart above). As per Jan 2023 data, we should be expecting a recession. Its predictive nature means that it is ahead of the cycle by about an estimated 7 months.

We should see more data affirming this starting with this week’s GDP announcement. The recent layoffs (from Tech and Finance industry) are good reference points. We could expect a decline in GDP, a reduction in earnings, an increase in unemployment and a reduction in disposable income as part of the recession. The above are covered under the 10 components of LEI. LEI looks to be a much more wholesome view of the market. For those who are considering Macro as part of our investing, we can consider monitoring LEI as part of our strategy.

Let us take time to review our portfolio and holdings, hopeful for the best and prepared for the worst.

@TigerStars

$S&P 500(.SPX)$  

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment128

  • Top
  • Latest
  • MaudNelly
    ·01-24
    TOP
    So looks like it''s the troughs in the business cycle now.
    Reply
    Report
    Fold Replies
    • KYHBKO
      best to finish this earnings season
      01-25
      Reply
      Report
  • AndreaClarissa
    ·01-24
    TOP
    It's a new kind of index for me.
    Reply
    Report
    Fold Replies
    • KYHBKO
      yes.  it's rather new to me too
      01-25
      Reply
      Report
  • MorganHope
    ·01-24
    TOP
    Thanks for introducing a new index for us.
    Reply
    Report
    Fold Replies
    • KYHBKO
      I am learning along the way too. all the best
      01-25
      Reply
      Report
  • Kaixiang
    ·01-26
    TOP
    This is a really new and insightful share, thanks!
    Reply
    Report
    Fold Replies
    • KYHBKO
      thank you.  all the best
      01-26
      Reply
      Report
  • asr68
    ·01-26
    TOP
    interesting index to look at.
    Reply
    Report
    Fold Replies
    • KYHBKO
      yes. glad I came across this.
      01-26
      Reply
      Report
  • jethro
    ·01-26
    T hanks for Sharing
    Reply
    Report
    Fold Replies
    • KYHBKO
      you're welcome
      01-26
      Reply
      Report
  • GerryLoh
    ·01-26
    good sharing thanks
    Reply
    Report
    Fold Replies
    • KYHBKO
      thank you
      01-27
      Reply
      Report
  • Zeolite26
    ·01-26
    Thanks for sharing
    Reply
    Report
  • jethro
    ·01-26
    thanks for sharing
    Reply
    Report
  • BlueDragon
    ·01-26
    thank you for sharing
    Reply
    Report
  • ianlefty
    ·01-28
    ok
    Reply
    Report
  • Khoo12
    ·01-27
    Hmm
    Reply
    Report
  • Good
    Reply
    Report
  • Fayedea
    ·01-27
    Great
    Reply
    Report
  • Keychain
    ·01-27
    Hmm
    Reply
    Report
  • Qwinbie
    ·01-26
    👍👍👍
    Reply
    Report
  • Looyusooi
    ·01-26
    ok
    Reply
    Report
  • Boein3G
    ·01-26
    up
    Reply
    Report
  • ycwoo
    ·01-26
    k
    Reply
    Report
  • 拍拍喵
    ·01-26
    [微笑]
    Reply
    Report