The Leading Economic Index (LEI) 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 nondefense 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 registered 104.4 (2004 = 100) in September, up from 103.8 in August. According to Bloomberg, the rise in the index reflected low interest rates with all-but-one (consumer expectations) of the 10 LEI components registering positive readings. Ataman Ozyildirim, Economist at The Conference Board, notes that there has been widespread strength in the LEI components over the last six months, and Ken Goldstein, Economist at The Conference Board, said “the financial markets are reflecting turmoil and unease, but the data on the leading indicators continue to suggest moderate growth in the short-term.”
The month-on-month changes in the LEI have shown a general upward tendency since mid-2012, reflecting the gradual improvement in economic and business conditions across the US; however, the rates of the increase in the index have still to recover to levels seen prior to the recession.
The LEI is generally thought of as an indicator of recession rather than expansion, but it does tend to over predict recession. That said, even though it has been generally growing for about 5 years, it does not appear to have reached a peak. Recessions generally occur 6 to 9 months after the LEI begins to fall off.
This means that although it is unlikely that the expansion will continue to run for much more than two or maybe three years, we can predict that at least in the medium term growth will continue.
What Can JDA Do for You?
Each month John Dunham and Associates provides information on current US economic indicators.
To stay in the loop and receive our value-added commentary that further describes how changes in these key economic data are important to your business or industry:
Subscribe to the Monthly Manifesto
Why subscribe to the JDA Monthly Manifesto?
This monthly economic newsletter is one way that John Dunham & Associates assists our clients and friends to better communicate and manage issues based on sound economic and fiscal research — what we call Guerrilla Economics.
For more information on how we can help on your legislative issues, please contact us at 212-239-2105.