Business cycle indicators
The Conference Board, an independent research association, publishes leading, coincident, and lagging indices for the US every month. These composite economic indices are published in an effort 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, they smooth out the volatility of any single component.
Leading economic index
The Conference Board Leading Economic Index, or LEI, is made up 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)
Of the three composite indices, the LEI is most important because it portends to indicate what’s going to happen in the future. A rise in the LEI indicates better future conditions.
The LEI for May 2015 rose by 0.7% to 123.1. This was the third straight month with an increase since a decline was reported for February. Do note that this indicator is subject to revisions if any of its components get revised or if the Conference Board revises any of its annual benchmarks.
The LEI rose in May, as did nine of its ten components. Building permits (LOW) (HD) (DRH) and the interest rate spread—or the difference between the ten-year Treasury yield and the federal funds rate—were the biggest contributors to the increase. None of the components fell. Instead, average weekly manufacturing hours were flat compared to the previous month.
Coincident economic index
The Conference Board Coincident Economic Index, or CEI, is composed of four indices, three of which contributed to the index’s 0.1% rise in May. Employees on nonagricultural payrolls, or non-farm payrolls, are given the highest weight at 52.8% of the CEI. This index was also the biggest positive contributor in May. Industrial production was the only one of the four indices to have lost ground in May.
Lagging economic index
The Conference Board Lagging Economic Index, or LAG, rose by 0.2% in May. Yet only three of its seven components rose during the month, in order of amplitude:
- the ratio of consumer installment credit outstanding to personal income
- the inverted average duration of unemployment
- the ratio of manufacturing and trade inventories to sales
The index of labor cost per unit of output saw the biggest losses in May.