What’s the Leading Economic Index Signaling for 2018?



The Conference Board Leading Economic Index

The Conference Board LEI (Leading Economic Index) is one of the most-followed forward economic indicators in the financial world. The LEI is a monthly economic series that tracks the changes in economic performance in the US and has historically been successful in predicting changes in business cycles.

The LEI considers ten forward-looking economic indicators and models the changes in these indicators to construct the index. Notably, the Conference Board also publishes two other economic series that model economic performance in the US: the CEI (Coincident Economic Index) and the LAG (Lagging Economic Index).

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The importance of LEIs

Tracking the changes to the business cycle in an economy is an important task for any investor in equity, fixed income (BND), or currency markets. Future changes in demand and supply can be forecast using forward-looking economic indicators.

LEIs have been successful indicators of future economic performances because they’re constructed using only forward indicators. For example, building permits, which is one of the components of the LEI, help predict housing (XHB) market activity. An increase in the number of building permits is a signal for increased activity in the housing sector—a key contributor to US economic progress.

January reading and series overview

The latest conference board LEI reading was released on January 25. According to the report, the LEI increased for the third-straight month. The LEI for December was reported at 107.0—an improvement of 0.6% from the revised November index reading of 106.4.

The higher reading in December was helped by positive contributions from the ISM New Orders Index (XLI) and the performance of the US stock market (SPY).

Throughout this series, we’ll analyze each component of the Conference Board LEI and understand its implication for different sectors, including consumer discretionary (XLY), industrials, housing, and markets overall.


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