The latest Conference Board Leading Economic Index (LEI) for October increased to 130.4 from 128.9 in September. The Coincident Economic Index (CEI) came in at 116.2, up from the previous month.
The Conference Board LEI for the US increased sharply in October, driven by positive contributions from almost all its underlying components. In the six-month period ending October 2017, the leading economic index increased 2.9 percent (about a 5.9 percent annual rate), faster than the growth of 2.3 percent (about a 4.6 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have become more widespread. [Full notes in PDF]
Must Read Leading Indicators Not Suggesting Imminent Market Peak, Recession
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 US LEI increased sharply in October, as the impact of the hurricanes dissipated,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.”
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
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 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. 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:
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 fewer 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 pair of charts including both the CEI and LEI, note the second chart is not in log scale. The first includes the full history of both series, while the second focuses on data since 2000.
