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Leading economic indicators: Stock prices & interest rate spreads

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What is the Conference Board’s Leading Indicators Index?

The Conference Board’s Leading Indicators Index (or LEI) report was released on Thursday, March 20.

The Conference Board’s three indices of leading, coincident, and lagging indicators give an estimate of the peaks and troughs of business cycles. Each of the three indices are based on indicators that are categorized as leading, lagging, or coincident. These indices are designed to summarize and indicate key turning points in business cycles. An increase in the LEI would mean that economic activity is likely to accelerate in the coming months, while a decrease in the LEI would indicate the opposite.

Part 6

What are leading, lagging, and coincident indicators?

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A leading indicator is the one that is generally thought to precede the changes in economic activity, while a lagging indicator usually follows the changes in economic activity. A coincident indicator is one that usually accompanies the changes in economic activity. The Leading Economic Index (or LEI) is based on readings from ten leading economic indicators, while the Coincident Economic Index (or CEI) is based on readings from four coincident economic indicators. The use of numerous indicators in constructing indices would smooth out some of the volatility of individual indicators, were they taken in isolation.

What did the composite economic indices indicate?

All three indices recorded increases in February, with the LEI increasing the most. The LEI increased 0.5% in February to 99.8, compared to an increase of 0.1% in January. The CEI increased 0.2% to 108.2 in February, versus 0.1% in January. The lagging economic index increased 0.3% in February to 122.1, compared to 0.5% in January.

The composite economic indices would likely impact almost all sectors of the U.S. economy, as the indices are designed to measure changes in the overall economy. One ETF that is designed to track the S&P 100 Index is the iShares S&P 100 ETF (OEF). The index is a market-cap weighted index and tracks the performance of 100 blue-chip companies from a cross-section of industries. With an expense ratio of 0.2%, top holdings in OEF include healthcare products manufacturer, Johnson & Johnson (JNJ) and diversified conglomerate, General Electric (GE) with 2.54% and 2.52% of assets, respectively.

Read about the implications of the Conference Board’s report on economic indices and their impact on fixed income ETFs like the iShares 7-10 Year Treasury Bond ETF (IEF) and the iShares 1-3 Year Treasury Bond ETF (SHY) in Part 7.

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