Conference Board Leading Economic Index

Conference Board Leading Economic Index (LEI) is a composite economic indicator that aims to forecast future economic activity in the United States. It is published monthly by The Conference Board, a non-profit business membership and research group organization. The LEI is designed to signal peaks and troughs in the business cycle, helping investors, policymakers, and economists anticipate changes in the economic environment. The index is composed of ten key components, each of which has been historically proven to shift direction ahead of changes in the overall economy.

Components

The ten components of the Conference Board Leading Economic Index are:

1. Average weekly hours worked by manufacturing workers
2. Average weekly initial applications for unemployment insurance
3. Manufacturers' new orders for consumer goods and materials
4. ISM Index of New Orders
5. Manufacturers' new orders for non-defense capital goods excluding aircraft
6. Building permits for new private housing units
7. Stock prices, 500 common stocks
8. Leading Credit Index™
9. Interest rate spread (10-year Treasury bonds less federal funds rate)
10. Average consumer expectations for business conditions

Each of these components is believed to precede changes in the economic cycle. For example, an increase in new orders for manufactured goods may indicate that manufacturers are expecting economic growth, while an increase in unemployment claims might signal a forthcoming economic slowdown.

Calculation

The LEI is calculated by aggregating the individual components after adjusting them for seasonal variations and normalizing them to ensure comparability. The normalized scores are then summed and scaled to create the index. The base year for the LEI's calculation is updated periodically; as of the last update, it was set to 2016=100. This normalization process allows for the comparison of index values over time to assess trends in economic activity.

Usage

The Conference Board LEI is widely used by economists, policymakers, and investors as a tool for economic forecasting and analysis. By providing an early signal of turning points in the business cycle, the LEI helps stakeholders make informed decisions. For example, a consistent decline in the LEI could prompt policymakers to implement measures to stimulate the economy. Similarly, investors might use trends in the LEI to adjust their investment strategies in anticipation of economic downturns or upturns.

Limitations

While the LEI is a valuable tool for forecasting economic trends, it is not without limitations. The index is subject to revisions as more accurate data becomes available, and its components may change over time as the economy evolves. Additionally, the LEI cannot predict the magnitude or duration of economic cycles, only the direction of change. External shocks, such as natural disasters or geopolitical events, can also impact the economy in ways that the LEI may not anticipate.

See Also

• Business Cycle
• Economic Indicator
• The Conference Board
• Gross Domestic Product

External Links

• The Conference Board Leading Economic Index