The Conference Board’s Leading Economic Index (LEI) is one of our favorite economic indicators. It is designed to predict future movements in the economy based on a composite of 10 economic indicators (like manufacturers’ new orders, stock prices, and weekly unemployment claims) whose changes tend to precede shifts in the overall economy. Last week, the LEI expanded for the first time in five months, along the way tying the all-time high set September 2018. Additionally, it is up 3% year over year (YoY).
The combination of continued weak economic data around the globe and various parts of the yield curve inverting are leading many to surmise that a recession is likely imminent. The good news is that the LEI has not turned negative on a YoY basis, which it has done prior to every recession since the 1970s. And even when it has turned negative, it was another eight months on average before a recession officially occurred (with a median of six months lag time). For this reason, and because of its solid track record of predicting recessions, the LEI is a component of LPL Research’s Five Forecasters.
As our LPL Chart of the Day shows, the LEI remains well above the 0% YoY threshold, which would be a definite negative—on multiple levels.
“The reality is that many of the coincident economic indicators (like consumer spending, capital expenditures, and industrial production) have painted a very dour outlook,” explained LPL Senior Market Strategist Ryan Detrick. “Now the good news is that the more leading economic indicators like copper, money supply, and services have all shown marked improvement since the December lows.”
For more on our thoughts on the economy, be sure to read our latest Weekly Economic Commentary.
IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
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