uploads///US Business Cycle Indicators

The Conference Board Leading Economic Index Rises in April 2015

David Ashworth - Author
By

May 25 2015, Published 2:45 p.m. ET

Business cycle indicators

The Conference Board, an independent research association, publishes leading, coincident, and lagging indices for the US each month. These composite economic indices are published to signal peaks and troughs in the business cycle. As the name suggests, the indices are composed of leading, coincident, and lagging indicators. Because they are composite indices, the volatility of any single component is evened out.

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Leading economic index

The LEI (leading economic index) consists of ten leading indicators including, among others:

  • average weekly hours – manufacturing
  • average weekly initial claims for unemployment insurance
  • building permits – new private housing units
  • stock prices – 500 common stocks (SPY) (IVV)

Out of the three composite indicators, the LEI assumes the most importance because it purports to indicate what’s going to happen in the future. A rise in the LEI indicates better future conditions.

The LEI for April 2015 increased by 0.7% to 122.3. This was the second straight monthly rise, following a fall reported for February. Do note that this indicator is subject to revisions if any of its components change or as a result of annual benchmark revisions that the Conference Board conducts.

The LEI rose in April along with seven of its ten component parts. Building permits (LOW) (HD) (DRH) and the interest rate spread—or the difference between the ten-year Treasury yield and the federal funds rate—contributed most to the rise. On the other hand, the ISM (Institute for Supply Management) new orders index fell, and two other indicators were unchanged from the previous month.

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Coincident economic index

The CEI (coincident economic index) is composed of four indices, three of which contributed to the index’s 0.2% rise in April. The number of employees on non-farm payrolls has the greatest weight in the CEI at 52.8%, and was also the biggest positive contributor in April. Industrial production was the only detractor.

Lagging economic index

The LAG (lagging economic index) rose by 0.1% in April, though only two of its seven components rose during the month. The ratio of consumer installment credit outstanding to personal income and the manufacturing-and-trade-inventories-to-sales ratio were the two advancing components. Detracting components were led by a change in the index of labor cost per unit of output.

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