The Leading Economic Index is calculated by The Conference Board, a business organization founded in 1914. It is based on the index from the values of 10 variables (Average weekly hours in manufacturing; average weekly initial claims for unemployment insurance; manufacturers’ new orders for consumer goods and materials; The ISM Index of New Orders; manufacturers’ new orders for non-defense capital goods excluding aircraft; building permits for new private housing units; the S&P 500 Index, Leading Credit Index™, the interest rate spread between 10-year Treasury bonds and federal funds, and an index of average consumer expectations for business conditions).
The LEI for June was flat at 95.3 having risen for the past two months. Declines in building permits, new orders and stock prices were offset by gains in consumer expectations, initial claims for unemployment insurance, and other financial indicators. According to the Conference Board, while the economy is experiencing positive growth, large uncertainties remain including “The pace of business spending, the improvements in consumer spending power and the impact of slower global growth on U.S. exports.”
The LEI is a good indicator of long-term growth prospects and has generally turned downward before a recession and upward before an expansion. Considering that the economy grew only slowly in the 2nd quarter (See GDP), based on the LEI, it is likely that growth in the latter part of 2013 will be slightly faster than forecast.
We generally do not track the LEI on a consistent basis, but rather look at changes over the long term. The LEI is still nowhere near the level it was prior to the recession, and is growing at a rate far below that of 2010 and 2011. While this is not a clear indicator of a near-term recession, it does suggest that businesses and industries should continue to be cautious about future prospects for economic growth – particularly when one considers that the Conference Board’s track of lagging economic indicators suggests that past growth has been relatively strong. Considering that GDP has been growing just slightly faster than population that does not bode well for future expectations.
