The Conference Board Leading Economic Index (LEI) for the U.S declined this month – and the authors say “Despite September’s decline, the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year”.

Analyst Opinion of the Leading Economic Index

Because of the significant backward revisions, I do not trust this index. This is a leading index, and hurricanes should not have any affect.

This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index’s value at 0.1 % to 0.3 % (consensus 0.1 %) versus the -0.2 % reported.

ECRI’s Weekly Leading Index (WLI) is forecasting slower growth over the next six months.

Additional comments from the economists at The Conference Board add context to the index’s behavior.

The Conference Board Leading Economic Index® (LEI)for theU.S. declined 0.2 percent in September to 128.6 (2010 = 100), following a 0.4 percent increase in August, and a 0.3 percent increase in July.

“The US LEI declined slightly in September for the first time in the last twelve months, partly a result of the temporary impact of the recent hurricanes,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The source of weakness was concentrated in labor markets and residential construction, while the majority of the LEI components continued to contribute positively. Despite September’s decline, the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.1 percent in September to 115.7 (2010 = 100), following no change in August, and a 0.1 percent increase in July.

 

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LEI as an Economic Monitoring Tool:

The usefulness of the LEI is not in the headline graphics but by examining its trend behavior. Econintersect contributor Doug Short (Advisor Perspectives / dshort.com) produces two trend graphics. The first one shows the six month rolling average of the rate of change – shown against the NBER recessions. The LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession.

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