U.S. Leading Economic Index Falls for the Third Straight Month in May

The U.S. Leading Economic Index (LEI) fell 0.5% m/m in May after unrevised drops of 0.6% in April and 0.3% in March, according to a report released today by The Conference Board. A 0.4% m/m May decline had been expected in the Action Economics Forecast Survey. Notably, the LEI had fallen m/m since March 2022 with one exception in February 2024 (0.0%). The May LEI at 101.2 was 14.7% below its record high of 118.6 in December 2021. The year-on-year rate was at -5.3% in May, the smallest decline since November 2022; it was less severe than -5.5% in April and -8.2% in May 2023.

Over the six-month period between November 2023 and May 2024, the LEI had fallen 2.0%, an improvement from its 3.4% decrease over the prior six months (May 2023 to November 2023). Despite pressures from sticky inflation and high interest rates, the U.S. economy is presently not in a recession albeit growing at a slower pace. The Conference Board stressed that “the LEI doesn’t currently signal a recession” despite the negative six-month growth rate; thus, forecasting that “real GDP growth will slow further to under 1 percent (annualized) over Q2 and Q3 2024, as elevated inflation and high interest rates continue to weigh on consumer spending.”

Five of the LEI's ten indicators in May contributed negatively to the index change. These included the ISM new orders index (-0.22ppt), average consumer expectations for business/economic conditions (-0.16ppt), building permits for new private housing units (-0.12ppt), the spread between the 10-year Treasury note & the Fed funds rate (-0.11ppt), and initial claims for unemployment insurance (-0.08ppt). Meanwhile, average weekly hours in manufacturing (0.12ppt), the S&P 500 index of stock prices (0.10ppt), manufacturers’ new orders for nondefense capital goods excluding aircraft orders (0.02ppt), the leading credit index (0.01ppt), and manufacturers’ new orders for consumer goods & materials (0.01ppt) contributed positively.

The Coincident Economic Index (CEI) rose 0.4% m/m (1.6% y/y) to 112.4 in May after increases of 0.1% in April (+0.2% initially) and 0.1% in March (+0.2% previously). The CEI m/m reading was the fourth consecutive monthly gain and the sixth in seven months. All four of the CEI’s components made positive contributions to the May m/m rise. They were industrial production (0.16ppt), personal income less transfer payments (0.07ppt), payroll employment (0.06ppt), and manufacturing & trade sales (0.04ppt).

The Lagging Economic Index (LAG) dipped 0.1% m/m (+1.4% y/y) to 119.4 in May following rises of 0.3% in April (+0.4% initially) and 0.1% in March (0.0% previously). The May m/m easing was the first since December. Three of the LAG's seven components made negative contributions to the index change including the average duration of unemployment (-0.18ppt), the change in the services CPI (-0.15ppt), and the change in factory sector unit labor costs (-0.01ppt). Meanwhile, commercial & industrial loans outstanding (0.04ppt) and the consumer installment credit-to-income ratio (0.01ppt) contributed positively. The manufacturing & trade inventory-to-sales ratio and the average prime rate charged by banks were unchanged.

The ratio of the CEI to the LAG, also viewed as a leading indicator of economic activity, rose 0.4% m/m (0.1% y/y) to 94.1 in May following a 0.3% drop in April and a 0.1% uptick in March. The May ratio was the highest since its recent high of 94.8 in December 2023. While having begun to exhibit a slight uptrend from a low of 93.1 in December 2022, the ratio remained below its March 2021 high of 101.0.

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 website for coverage of leading indicator series from around the world.