Conference Board Leading Economic Index: "Flat In November"
Doug Short | Dec 24, 2016 11:52PM ET
Note: With the avalanche of economic data released yesterday, we are a day late in our usual update for the Conference Board's Leading Economic Index.
The Latest Conference Board Leading Economic Index (LEI) for November was unchanged at 124.6, but September and October were both revised upward by 0.1 percent. The latest indicator value came in below the month-over-month 0.2 percent increase forecast by Investing.com.
The Conference Board LEI for the U.S. was flat in November with positive contributions from seven out of its ten underlying components, negating declines from building permits, average weekly manufacturing hours and the ISM® new orders index. In the six-month period ending November 2016, the leading economic index increased 1.0 percent (about a 2.0 percent annual rate), after declining 0.2 percent (about -0.5 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have recently become more widespread. [Full notes in PDF]
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:
"The U.S. Leading Economic Index continued on an upward trend through 2016, although at a moderate pace of growth,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The underlying trends in the LEI suggest that the economy will continue expanding into the first half of 2017, but it’s unlikely to considerably accelerate. Although the industrial and construction indicators held the U.S. LEI back in November, the weakness was offset by improvements in the interest rate spread, initial unemployment insurance claims, and stock prices.”
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 Smoothed Rate of Change
Based on suggestions from Neile Wolfe of Wells Fargo Advisors, LLC 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 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. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. Here is a twelve month smoothed out version, which further eliminates the whipsaws:
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