The Conference Board Leading Economic Index (LEI) for the U.S improved this month – and the authors say ” the recent weakness in residential construction and stock prices – important leading indicators – should be monitored closely“.

Analyst Opinion of the Leading Economic Index

Because of the significant backward revisions, I do not trust this index.

This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index’s month-over-month change at 0.1 % to 0.5 % (consensus 0.3 %) versus the +0.6 % 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 the U.S. increased 0.6 percent in February to 108.7 (2016 = 100), following a 0.8 percent increase in January, and a 0.7 percent increase in December.

“The U.S. LEI rose again, despite a sharp downturn in stock markets and weakness in housing construction in February,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The LEI points to robust economic growth throughout 2018. Its six-month growth rate has not been this high since the first quarter of 2011. While the Federal Reserve is on track to continue raising its benchmark rate for the rest of the year, the recent weakness in residential construction and stock prices – important leading indicators – should be monitored closely.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.3 percent in February to 103.3 (2016 = 100), following a 0.1 percent increase in January, and a 0.2 percent increase in December.

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.