Summary: US leading index reading below expectations in February; vaccinations, fiscal supports not yet fully reflected; Conference Board raises 2021 forecast; “signs of weakness” among some index components, from temporary factors.
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 signalled “a deep US recession”; more recent readings indicated the US recovery is still underway, albeit at a slowing pace.
The latest reading of the LEI indicates it rose by 0.2% in February. The result was less than the 0.3% increase which had been generally expected and January’s 0.5% increase. However, on an annual basis, the LEI growth rate increased from -1.4% after revisions to -1.0%.
Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board said “economic growth should continue well into this year.” He noted “the acceleration of the vaccination campaign and a new round of large fiscal supports are not yet fully reflected in the LEI.”
Changes over time can be large but once they are standardised, a clearer relationship with GDP emerges. The latest reading implies a 0.3% year-on-year growth rate in May, up from April’s 0.1%. The Conference Board forecasts a 5.5% expansion across all of calendar 2021, up from their forecast of 4.4% 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.