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Conference Board Leading Economic Index Remains in Growth Territory

  • Written by Syndicated Publisher No Comments Comments
    April 20, 2015

    The Latest Conference Board Leading Economic Index (LEI) for March is now available. The index rose 0.2 percent, which follows a 0.1 percent February increase (a downward revision from 0.2 percent). The latest number came in below the 0.3 percent forecast by Investing.com.

    Here is an overview from the LEI technical notes:

    The Conference Board LEI for the U.S. increased again in March. Large positive contributions from initial unemployment claims and the yield spread more than offset the large negative contribution from building permits. In the six-month period ending March 2015, the leading economic index increased 1.8 percent (about a 3.7 percent annual rate), much slower than the growth of 3.3 percent (about a 6.7 percent annual rate) during the previous six months. But the strengths among the leading indicators have remained 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.

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

    “Although the leading economic index still points to a moderate expansion in economic activity, its slowing growth rate over recent months suggests weaker growth may be ahead,” said Ataman Ozyildirim, Economist at The Conference Board. “Building permits was the weakest component this month, but average working hours and manufacturing new orders have also slowed the LEI’s growth over the last six 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.

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    LEI and Its Six-Month Moving Average

    My friend Neile Wolfe of Wells Fargo Advisors, LLC suggested using a six-month moving average to further enhance our use of the Conference Board’s LEI as gauge of recession risk. The area chart shows the percentage variance of the LEI from that moving average.

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    As we can see, the LEI has historically droped below its six-month moving average many months in advance of a recession.

    Here is the same chart based on the six-month rate of change, which gives a similar insight into behavior of the index in relation to recessions.

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    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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