uploads/2018/05/usa-2661656_1280.jpg

Why Drove the Leading Economic Index Higher in April?

By

Updated

The Conference Board Leading Economic Index

The Conference Board Leading Economic Index (or LEI) is a monthly economic data release that helps investors track changes to the US business cycle. This index was constructed using an economic model that incorporates changes to ten forward-looking economic indicators. The Conference Board is an independent business membership and research institute that prepares reports for different economies. 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 table below lists economic indicators and their weights in the LEI.

Article continues below advertisement

Importance of leading economic indexes

Understanding business cycles in an economy is an important part of financial market investing, and the leading economic indicators provide an opportunity to assess any impending changes to business cycles. The Conference Board LEI is a combination of ten such leading indicators and provides vital clues about impending changes to the business cycle. A changing business climate impacts investors in all financial assets including equity, fixed income (BND), and currency markets.

For instance, the number of building permits issued, which is one of the components of the LEI, have been increasing steadily over the last one year. Building permits are considered a forward indicator because 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 for the US economy.

April LEI reading and series overview

The latest Conference Board LEI reading was released on May 17. As per the report, the LEI for April was reported at 109.4, an increase of 0.4% from the March index reading of 109.0. The LEI has increased for eight consecutive months. There were two negative contributors: the number of building permits (REM) and equity prices, which were lower in April.

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

Advertisement

More From Market Realist