The Latest Conference Board Leading Economic Index (LEI) for September increased 0.2 percent to 124.4 from August's 124.1. The latest indicator value came in at the month-over-month percent forecast by Investing.com.
Here is an overview from the LEI technical press release:
The Conference Board LEI for the US increased in September, after declining in August. Large positive contributions from building permits, the yield spread and average initial claims for unemployment insurance (inverted) fueled September’s gain. In the six-month period ending September 2016, the leading economic index increased 1.1 percent (about a 2.3 percent annual rate), much faster than its growth of 0.3 percent (about a 0.7 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators remain slightly more widespread than the weaknesses. [Full notes in PDF]
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 in September, reversing its August decline, which together with the pickup in the sixmonth growth rate suggests that the economy should continue expanding at a moderate pace through early 2017,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Housing permits, unemployment insurance claims, and the interest rate spread were the main components lifting the index in September. Overall, the strengths among the leading indicators are outweighing modest weaknesses in stock prices and the average workweek.”
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 the 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:
