Summary: US leading index up 1.3% in May; above expectations; “strong economic growth will continue”; Conference Board raises 2021 forecast again, from 6.4% to 6.6%.
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 1.3% in May. The result was above the 1.1% increase which had been generally expected but in line with April’s revised figure. On an annual basis, the LEI growth rate slowed from 16.9% after revisions to 14.9%.
“After another large improvement in May, the US LEI now stands above its previous peak reached in January 2020, suggesting that strong economic growth will continue in the near term,” 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 6.7% year-on-year growth rate in August, down from July’s 7.2%. The Conference Board forecasts a 6.6% expansion across all of calendar 2021, up from their forecast of 6.4% 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.
Longer-term US Treasury bond yields ended the day noticeably lower. At the close of business, the 10-year Treasury yield had shed 7bps to 1.51% and the 30-year yield had dropped by 11bps to 2.10%. The 2-year yield crept up 1bp to 0.22%.