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What Drove the Leading Economic Index Higher in February?

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Mar. 30 2018, Updated 2:04 p.m. ET

The Conference Board Leading Economic Index

The Conference Board Leading Economic Index (or LEI) is a monthly economic series that helps predict any changes in the US business cycle. It’s one of the most followed leading economic indexes, as it’s constructed by modeling changes to ten forward-looking economic indicators. 

Apart from the LEI, the Conference Board publishes two other economic series—the Coincident Economic Index (or CEI) and the Lagging Economic Index (or LAG)—that model the economic performance in the US. We follow the LEI for its ability to act as a forward indicator. The chart below lists economic indicators and their respective weights in the LEI.

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Importance of leading economic indexes

Leading indicators provide vital clues about the future of an economy and give investors an opportunity to prepare for any changes to the various business cycles. A changing business climate impacts investors in all financial assets, including equity, fixed income (BND), and the currency markets. The unique feature of the LEI is that it uses a collection of these forward indicators to signal any changes to the US economy.

For example, the number of building permits issued, which is one of the components of the LEI, have been reported to be increasing over the last 12 months. An increase in the issuance of building permits is a signal of increased activity in the housing (XHB) sector. This trend is a positive signal for economic growth, as the housing sector is a major employer of the American workforce.

February LEI reading and series overview

The latest Conference Board LEI reading was released on March 22. According to the report, February’s LEI was 108.7, an increase of 0.6% from the revised January index reading of 108.0. This is the fifth consecutive monthly gain for the index, with the number of building permits for housing (XLRE) and stock prices (VOO) being the two negative contributors to the index.

Throughout this series, we’ll analyze each component of the Conference Board LEI. We’ll explore its implication for sectors such as consumer discretionary (XLY), industrials, and housing, as well as the overall markets.

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