U.S. Leading Economic Index Drops in May to the Lowest Level Since July ’20
Summary
- LEI down for the 14th consecutive month.
- Coincident Economic Index up for the second straight month.
- Lagging Economic Index rebounds marginally.
The U.S. Leading Economic Index (LEI) fell 0.7% m/m in May after unrevised drops of 0.6% in April and 1.2% in March, according to a report released today by The Conference Board. A 0.8% m/m May decline had been expected in the Action Economics Forecast Survey. The May LEI at 106.7 was the lowest level since July 2020. Over the six-month period between November 2022 and May 2023, the LEI had fallen 4.3%, deeper than its 3.8% drop over the prior six months (May–November 2022). The year-on-year rate of decline was at -7.9% in May, marginally less severe than -8.0% in April and March. The Conference Board LEI has been a very accurate leading indicator of recessions over the past 60 years. Today’s readings signal weakening economic growth prospects and recession risks.
Four of the LEI's ten indicators in May contributed negatively to the index change including average consumer expectations for business conditions, the ISM new orders index, the interest rate spread (10-year Treasury bonds less federal funds rate), and the leading credit index. Meanwhile, building permits for new private housing units, initial claims for unemployment insurance, the S&P 500 index of stock prices, and manufacturers’ new orders for consumer goods & materials contributed positively. Average weekly hours in manufacturing and manufacturers’ new orders for nondefense capital goods excluding aircraft orders were unchanged.
The Coincident Economic Index (CEI) rose 0.2% m/m (1.8% y/y) to 110.2 in May after an unrevised 0.3% increase in April and no change in March (+0.2% previously) and February. Three of the four CEI’s components made positive contributions to the May rise including payroll employment, personal income less transfer payments, and manufacturing & trade sales. In contrast, industrial production contributed negatively.
The Lagging Economic Index (LAG) ticked up 0.1% m/m (4.0% y/y) to 118.4 in May following an unrevised 0.1% easing in April and no change in March. Two of the LAG's seven components made positive contributions to the index change including the average prime rate charged by banks and consumer installment credit-to-income ratio. Meanwhile, the change in the services CPI, the average duration of unemployment, commercial & industrial loans outstanding, and the change in factory sector unit labor costs contributed negatively. The manufacturing & trade inventory-to-sales ratio was essentially unchanged.
The ratio of the CEI to the LAG, also seen as a leading indicator of recession, edged up 0.1% m/m to 93.1 in May after rising 0.3% in April and holding steady m/m in March and February. The May ratio was the highest since October 2022. Despite the May m/m marginal increase, the ratio remained down from its March 2021 high of 100.1.
The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations are in the AS1REPNA database. Visit the Conference Board's site for coverage of leading indicator series from around the world.
Winnie Tapasanun
AuthorMore in Author Profile »Winnie Tapasanun has been working for Haver Analytics since 2013. She has 20+ years of working in the financial services industry. As Vice President and Economic Analyst at Globicus International, Inc., a New York-based company specializing in macroeconomics and financial markets, Winnie oversaw the company’s business operations, managed financial and economic data, and wrote daily reports on macroeconomics and financial markets. Prior to working at Globicus, she was Investment Promotion Officer at the New York Office of the Thailand Board of Investment (BOI) where she wrote monthly reports on the U.S. economic outlook, wrote reports on the outlook of key U.S. industries, and assisted investors on doing business and investment in Thailand. Prior to joining the BOI, she was Adjunct Professor teaching International Political Economy/International Relations at the City College of New York. Prior to her teaching experience at the CCNY, Winnie successfully completed internships at the United Nations. Winnie holds an MA Degree from Long Island University, New York. She also did graduate studies at Columbia University in the City of New York and doctoral requirements at the Graduate Center of the City University of New York. Her areas of specialization are international political economy, macroeconomics, financial markets, political economy, international relations, and business development/business strategy. Her regional specialization includes, but not limited to, Southeast Asia and East Asia. Winnie is bilingual in English and Thai with competency in French. She loves to travel (~30 countries) to better understand each country’s unique economy, fascinating culture and people as well as the global economy as a whole.
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