The Index of Leading Economic Indicators

Relegate this to the back burner at your peril. The Index of Leading Economic Indicators (LEI) is a very important piece of data that often gets buried. The quick definition is that the index is designed to forecast economic conditions several months down the road.

The LEI, according to the conference board fell by 0.6% in August. Only the real money supply component of the index rose, while 9 other measures in the index fell during August.

Back on August 30th, I made this blog entry, quoting Northern Trust economist Paul Kasriel about the LEI's importance in forecasting either good or bad times by using it on a year over year quarterly basis...

"The consensus of economists has never forecast a recession. That doesn’t mean individuals haven’t, but the consensus forecast tells you little," says Paul Kasriel, chief economist of Northern Trust. "The consensus always ends up being surprised."Kasriel uses two indicators that he says are both flashing a "recession signal"."My first indicator is simple and has correctly called recessions since 1970 with no false readings," says Kasriel.His indicator looks at two variables. One is the spread between 10 year treasurys and the Fed Funds rate. The other tracks the Fed's monetary base.The first says, Kasriel is "negative with fed funds above the 10 year treasury, and the quarterly year over year change in the Fed's monetary base is contracting. "When both those conditions exist, it suggests recession is on the way, according to Kasriel. His other indicator is looking at the Index of Leading Economic Indicators, or LEI. Kasriel says the quarterly year over year change in the LEI has been negative. He says that indicator has worked over the nearly 5 decades with the exception of a period in 1967.