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What the Leading Economic Index Signals for the US Economy

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The Conference Board Leading Economic Index

The Conference Board LEI (Leading Economic Index), a closely followed economic indicator in the investor community, tracks the US economy’s health. It has been a reliable predictor of changes to the US economy’s business cycles. The LEI tracks changes in ten economic indicators in the previous month. The Coincident Economic Index and Lagging Economic Index are two other economic indexes published by the Conference Board every month.

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Importance of the LEI

Tracking an economy’s business cycle changes is an important task for any investor in equity, fixed income (BND), or currency markets. As these changes are forecast using indicators that predict changes in demand and supply, the LEI is an ideal measure as it comprises forward-looking indicators. Because the LEI has a proven track record of predicting changes in economic activity, it remains a popular index among investors.

Latest readings and series overview

The November Conference Board LEI, released on December 21, reported continued improvement in the last six months. The LEI improved by 3%, an increase from the 2.4% growth seen in the previous six months. In November, the LEI improved by 0.4% to 130.9 from 130.4 in October. Weekly initial claims and building permits (XHB) impacted November’s index results.

Throughout this series, we’ll analyze each component of the Conference Board LEI and try to understand its implications for the consumer discretionary (XLY), industrial (XLI), and housing sectors, and the overall markets (SPY).

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