The Conference Board LEI
The Conference Board Leading Economic Index (or LEI) is one of the three composite business cycle indicators released by The Conference Board. The other two indicator series are the Composite Index of Coincident Indicators and the Composite Index of Lagging Indicators.
These indicators are used by investors and companies to understand the economic cycles of their respective countries. The Conference Board LEI is the most followed indicator. It’s used to access data about the state of business cycles, and it’s proved to be a reliable predictor of future recessions and expansions.
The LEI is derived from an economic model that constitutes of ten economic indicators that have been standardized to smooth volatility. The standardization factor used for the July release is mentioned in the chart above.
Constituents of the LEI
All the indicators above are leading indicators that give a sense of future economic activity. For instance, let’s consider building permits data. Building permits are reported every month, and a rise in this indicator suggests increased construction activity in the future, which is a positive sign for economic growth and the housing industry (ITB). A fall, on the other hand, could mean slowing economic activity.
Each component represents an important part of the economy, and a combined LEI works as a reliable predictor of the future business cycle.
The latest LEI data for June were released on July 20, 2017. The index was reported at 127.8 for June, a rise of 0.6% over its level of 127.0 in May. As per the report from The Conference Board, eight out of ten components improved in the United States in June. Weekly initial claims ticked lower, while average weekly manufacturing hours remained unchanged.
Throughout this series, we’ll analyze each component of the LEI to understand its implication for different sectors such as the consumer discretionary sector (XLY), the industrials sector (XLI), the housing sector (XHB), and the overall market (SPY).