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What Drove the Leading Economic Index Higher in March?

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The Conference Board Leading Economic Index

The Conference Board Leading Economic Index (or LEI) is a monthly economic series that tracks changes to the US business cycle. This index is based on an economic model that incorporates changes to ten forward-looking economic indicators each month.

The Conference Board releases these reports for different economies. Apart from the LEI, the Conference Board releases two other economic series—The Coincident Economic Index (or CEI) and Lagging Economic Index (or LAG)—that model US economic performance.

In this series, we’ll analyze the changes to the LEI and assess whether the economic model is signaling any changes to the US business cycle. The chart below depicts the list of economic indicators and their respective weights in the LEI.

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Importance of the LEI

Being prepared for any changes to the business cycle is an important part of investing. Leading economic indicators provide these vital clues, and the LEI is a combination of ten such important indicators. A changing business climate impacts investors in all financial assets, including equity, fixed income (BND), and the currency markets.

The number of building permits issued, which is one of the components of the LEI, has been increasing steadily over the last year. Building permits are considered a forward indicator, as the economic activity related to building permits starts only after permits are issued. The increasing number of building permits is a positive sign for the housing industry (XHB) and to the US economy.

March LEI reading and series overview

The latest Conference Board LEI reading was released on April 19. According to the report, the LEI for March was reported at 109.0, an increase of 0.3% from the revised February index reading of 108.7. The LEI has increased for the seventh consecutive month, with only two negative contributors to the index—the weekly working hours of production (VIS) and new orders in the manufacturing (XLI) sector.

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

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