Analyzing the Conference Board Leading Economic Index (LEI) and Coincident Economic Index (CEI) – July 2024 Update

The latest Conference Board Leading Economic Index (LEI) has taken a significant hit, dropping to its lowest level since April 2020. This decline marks the fifth consecutive monthly decrease, with the index falling by 0.6% in July to 100.4. Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board, highlighted the widespread weakness among non-financial components contributing to this decline.

Key factors driving the decrease include a sharp deterioration in new orders, weak consumer expectations of business conditions, softer building permits, and reduced hours worked in manufacturing. Additionally, the still-negative yield spread indicates ongoing headwinds in economic growth. The Conference Board anticipates a slowdown in US real GDP growth over the next few quarters as consumers and businesses continue to cut spending and investments.

The LEI serves as a predictive variable that anticipates turning points in the business cycle and provides insights into where the economy is heading. Comprised of multiple indicators, the LEI aims to offer a clearer picture by smoothing out volatility associated with individual components. The ten components of the Conference Board LEI include average weekly hours in manufacturing, initial claims for unemployment insurance, new orders for consumer goods, and materials, among others.

As the LEI continues to decline, it is essential to monitor its relationship with the Coincident Economic Index (CEI), which measures current economic activity. While the LEI has been on a downward trend since April 2022, the CEI has shown more resilience, with observations indicating that the CEI tends to rise when the LEI falls. The ratio between the LEI and CEI has been declining for 28 consecutive months, potentially signaling a leading indicator of recessions.

Overall, the latest data from the Conference Board’s LEI paints a cautious outlook for the US economy, with challenges ahead in terms of economic growth and potential recession risks. Stay tuned for further updates on how these indicators evolve and impact the broader economic landscape.