The latest Conference Board Leading Economic Index (LEI) decreased in August to its lowest level since October 2016. The index fell 0.2% from the previous month to 100.2, marking its sixth consecutive monthly decline and triggering a recession signal.
“In August, the US LEI remained on a downward trajectory and posted its sixth consecutive monthly decline,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The erosion continued to be driven by new orders, which recorded its lowest value since May 2023. A negative interest rate spread, persistently gloomy consumer expectations of future business conditions, and lower stock prices after the early-August financial market tumult also weighed on the Index. Overall, the LEI continued to signal headwinds to economic growth ahead. The Conference Board expects US real GDP growth to lose momentum in the second half of this year as higher prices, elevated interest rates, and mounting debt erode domestic demand. However, in the Fed’s September 2024 Summary of Economic Projections, policymakers suggested 100 basis points of interest rate cuts are likely by the end of this year, which should lower borrowing costs and support stronger economic activity in 2025.” More
Background on the Conference Board Leading Economic Index® (LEI)
The LEI is a composite index of several indicators. It is a predictive variable that anticipates, or leads, turning points in the business cycle and anticipates where the economy is heading. Since the LEI is comprised of multiple components, it is meant to provide a clearer picture as it is able to smooth out volatility associated with individual components. The ten components of Conference Board LEI include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.
Here is a chart of the LEI series with documented recessions as identified by the NBER. Note the peaks of the index preceding each of the recessions and the troughs occurring near the end of each recession.
Leading Economic Index and Recession Risk
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. We are currently 17.6% off the 2021 peak. The chart also calls out the number of months between the previous peak and official recessions. On average, there is usually 10.6 months between a peak and a recession. We are currently 32 months off from the 2021 peak.
