The Conference Board Leading Economic Index
The Conference Board Leading Economic Index (or LEI) is one of three composite business cycle indicators released by Conference Board. This reading gives investors an idea of the current economic cycle. It is one of the most followed indicators in the financial and investment industry because of its reliable track record. The LEI uses an economic model comprising ten economic indicators, which are standardized to smooth volatility (VXX).
Ten important economic indicators packed into one
As shown in the chart above, the LEI incorporates ten economic monthly releases. They are leading indicators, meaning their readings change before the underlying economy shows any signs of change. The LEI has a successful track record in predicting the future of business cycles using these indicators.
Let’s consider manufacturing average weekly hours, a component of the LEI. Changes in the number of hours worked by manufacturing (FXR) sector workers gives investors an idea of production planning in the industry. A decline in hours worked could mean that management is expecting slower demand in the next few months. An increase could mean higher demand for products and better returns for shareholders.
Latest reading and series overview
July’s LEI was released on August 17. The index reading for the US economy rose 0.3%, increasing to 128.3 from a revised June index reading of 127.9. July’s reading marked another lifetime high for the index, and gains were recorded in all components except building permits.
In this series, we’ll analyze each component of the LEI and its implications for different sectors, including consumer discretionary (XLY), industrials (XLI), and housing (XHB), as well as for the overall market (SPY).