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Why This Leading Economic Index Signals a Bright Outlook for US Economy

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The Conference Board’s LEI

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 any changes in the US business cycle. The index is constructed by modeling the changes to ten forward-looking economic indicators.

The Conference Board also publishes two other economic series, the CEI (Coincident Economic Index) and the LAG (Lagging Economic Index), which model the US economic performance.

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The importance of leading economic indexes

Tracking the changes in business cycles gives investors an advantage to be prepared for economic downturns. The changing business climate impacts investors in all financial assets, including equity, fixed income (BND), and currency markets.

Changes in expected demand can be forecast using the forward-looking indicators that are used to construct the Conference Board’s LEI. For instance, building permits, which is one of the components of the LEI, have been reported to have increased in January.

An increase in building permits issues is a signal of increased activity in the housing (XHB) sector and is a positive signal for economic growth. The strength among the ten indicators has been widespread, with none of the indicators having a negative impact on the LEI, which indicates that the US economy is on a right track and expanding.

February LEI reading and series overview

The latest conference board LEI reading was released on February 22. According to the report, the LEI for January was reported at 108.1, which marks an improvement of 1.0% from the revised December index reading of 107.0.

This is the fourth-straight monthly gain for the index, and this month’s gains were driven by improvements in the number of building permits for housing (XLRE) and financial (XLF) sub-components.

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

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