Summary: US leading index reading slightly above expectations in April; index surpasses previous peak; Conference Board raises 2021 forecast again; growth “may accelerate” in near term.
The Conference Board Leading Economic Index (LEI) is a composite index composed of ten sub-indices which are thought to be sensitive to changes in the US economy. The Conference Board describes it as an index which attempts to signal growth peaks and troughs; turning points in the index have historically occurred prior to changes in aggregate economic activity. Readings from March and April of 2020 signalled “a deep US recession” but then subsequent readings indicated the US economy was recovering rapidly.
The latest reading of the LEI indicates it rose by 1.6% in April. The result was above the 1.2% increase which had been generally expected and more than March’s 1.3% rise. On an annual basis, the LEI growth rate increased from +8.2% after revisions to +15.7%.
“With April’s large monthly gain to start the second quarter, the U.S. LEI has now recovered fully from its COVID-19 contraction, surpassing the index’s previous peak, reached at the very onset of the global pandemic in January 2020,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board.
Changes over time can be large but once they are standardised, a clearer relationship with GDP emerges. The latest reading implies a 7.2% year-on-year growth rate in July, up from June’s 4.2%. The Conference Board forecasts a 6.4% expansion across all of calendar 2021, up from their forecast of 6.0% a month ago.
Zero in the chart above represents the average US GDP growth rate from September 2002, or about 1.8% year on year.
US Treasury bond yields ended the day lower. At the close of business, the 2-year Treasury yield had slipped 1bp to 0.15%, the 10-year yield had lost 5bps to 1.62% while the 30-year yield finished 4bps lower at 2.33%.