Leading Economic Indicators (LEI) Unexpectedly Dive Into Negative Territory


The Conference Board's LEI index turned negative in June. The yield curve finally made a negative contribution.

The conference board provides this press release on Leading Economic Indicators for June.

“The US LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first time since late 2007, the yield spread made a small negative contribution. As the US economy enters its eleventh year of expansion, the longest in US history, the LEI suggests growth is likely to remain slow in the second half of the year.”

The consensus estimate was for LEI of +0.1.

Ten LEI Components

  1. Average weekly hours, manufacturing
  2. Average weekly initial claims for unemployment insurance
  3. Manufacturers’ new orders, consumer goods and materials
  4. ISM® Index of New Orders
  5. Manufacturers' new orders, nondefense capital goods excluding aircraft orders
  6. Building permits, new private housing units
  7. Stock prices, 500 common stocks
  8. Leading Credit Index™
  9. Interest rate spread, 10-year Treasury bonds less federal funds
  10. Average consumer expectations for business conditions


  • Had they used housing starts rather than permits we may have had a different number.
  • The stock market does not lead anything. It peaked in November of 2007 right with the economy.
  • Using consumer expectations for business as a measure of anything reliable seems silly.
  • The leading credit index is proprietary. What's in that? What percentage weight does it have?

Leading vs Coincident Indicators

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Leading vs Coincident Indicators Annual Rate

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June's -0.3% decline does not show up in the preceding two charts.

Negative contributions were led by building permits, ISM New Orders, and jobless claims. Positive contributions were led by credit conditions, consumer expectations, the factory workweek, and the stock market. The Index of Coincident Economic Indicators rose modestly (Note that two of its four components are estimated).

Leading Indicators 1969-Present

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Warning Time

As a leading indicator, the LEI can provide a huge warning time. Too big?

Ahead of the Great Recession, the index peaked in 2005. Year-over-year it peaked in 2003.

The LEI by itself has false positives as does the coincident indicator.

If you use the the LEI and CEI together, recessions are confirmed but take a look at 2001. The LEI was at -12 or so before the coincident indicator touched zero.

They are both near zero now, for the third or fourth time since 2011. The LEI by itself, month-over-month, has been negative seven times since 2010.

Will there be any lead time (LEI +CEI) this time? I suggest not.

A couple of recent posts help explain the current picture.

  1. Junk Bond Bubble in Pictures: Deflation Up Next
  2. Housing Slowly Rolling Over: June Permits Down 6.1%, Starts Down 0.9%

Mike "Mish" Shedlock

Comments (15)
No. 1-7

It would appear from your charts that the LEI is fairly accurate, and gives about a 1-2 year warning, though individual small negatives don't tell you much. If the overall index peaks, and continues heading down, we could see a recession in a year, or perhaps a bit more. With the election a shade over a year away, timing is everything. If the recession comes at the early end of the 1-2 year timeframe, Trump will most likely be in trouble. If it comes at the long end of it, he'll most likely be re-elected.


How accurate are all these metrics in the low-rate era we've been living in since 2009 ?


They use multiple metrics because some work well in some recessions, while other work well at other times. The key isn't any one index, but the composite. If it turns out that it doesn't work well this time, the will make adjustments to it.

Looking at the chart, since 2009 the LEI has moved steadily higher, while the economy has grown steadily. I see nothing to indicate that it isn't working properly.


The economy is certainly slowing. Perhaps a recession is possible. Eventually Mish will be correct about a recession. Of course, he will be right on a recession before he will be right about global cooling (which certainly won’t happen in his lifetime).



"Of course, he will be right on a recession before he will be right about global cooling (which certainly won’t happen in his lifetime)."

I like that - Laughing

Depends on how long I live - or not

Global cooling may be happening now.

If I die tomorrow, and the NBER says a recession next month, you may be wrong both ways


As I have learned, anything is possible, and I will sometimes be wrong. Mish, I hope you live a long, full life. Eventually, you will see that recession.

Regarding global cooling, I’m not sure what you are looking at, though I truly wish you were right about that. Scientific measurements say otherwise. June 2019 was the planet’s warmest June since measurements began. The long term trend is still moving in the wrong direction. Oceans are still warming, rising and acidifying. I suspect you will change your opinion, provided you live a long, and hopefully good life.


I see lower growth and not a recession. Even more so if the Fed cuts. The indicators are headed to 2011-14 levels which was when the economy was in recovery. It struggled along but made it. There is a private debt problem in the bond market but I believe this is the very reason the Fed is cutting. The real economy seems to cooling from 3-4% GDP to 1-2% GDP. CFNAI-MA3 is also slowing but not to recessionary levels.

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