Conference board leading economic index: Meaning, Criticisms & Real-World Uses

What Is the Conference Board Leading Economic Index?

The Conference Board Leading Economic Index (LEI) is a composite index designed to signal future economic activity in the United States. It falls under the broader category of economic indicators, which are key statistics used by economists, analysts, and policymakers to understand and predict the direction of the economy. The LEI aims to provide an early indication of significant turning points in the business cycle, typically forecasting trends six to twelve months into the future⁷³. Unlike indicators that reflect current or past economic conditions, the Conference Board Leading Economic Index is specifically constructed from components that tend to change before the overall economy does, helping to anticipate periods of economic expansion or recession.

History and Origin

The concept of composite economic indexes dates back to the early 20th century, with significant development occurring at the National Bureau of Economic Research (NBER). However, the specific responsibility for compiling and disseminating the leading, coincident, and lagging economic indexes was transferred from the U.S. Department of Commerce's Bureau of Economic Analysis (BEA) to The Conference Board in 1995⁷². The first independent release of the Leading Economic Index by The Conference Board took place on January 17, 1996⁷¹.

The move to a private organization was part of a strategic plan by the Commerce Department to redirect resources to other pressing statistical issues, such as measuring output, prices, and the nation's capital stock⁷⁰. The Conference Board, a non-profit business research organization, was chosen due to its mission to provide economic insights and its capacity to maintain the extensive Business Cycle Indicators database⁶⁸, ⁶⁹. Over the years, the components of the Conference Board Leading Economic Index have been periodically reviewed and revised to ensure their predictive accuracy remains relevant to the evolving economic landscape⁶⁷. For example, a restructuring in 2012 saw the replacement of several components, including real money supply (M2), with new ones like the Leading Credit Index and an updated aggregate of consumer expectations⁶⁶. More information on The Conference Board's economic indicators can be found on their official website: The Conference Board.

Key Takeaways

The Conference Board Leading Economic Index (LEI) is a composite index that aims to predict future economic activity, typically 6-12 months ahead.
It is compiled and published monthly by The Conference Board, a non-governmental business research organization.
The LEI is comprised of ten diverse economic components, chosen for their tendency to lead the overall Gross Domestic Product (GDP) and the broader economy⁶⁵.
A sustained decline in the LEI has historically signaled an impending recession, while sustained increases suggest economic expansion⁶³, ⁶⁴.
The index is a crucial tool for economic forecasting for policymakers, businesses, and investors.

Components and Calculation

The Conference Board Leading Economic Index is a composite index, meaning it combines several individual economic indicators into a single metric. There isn't a simple, single formula, but rather a weighted average of its ten components. These components are standardized to prevent any single variable from dominating the index due to its unit of measurement or volatility⁶².

The ten components of the Conference Board Leading Economic Index are:

Average weekly hours in manufacturing: Reflects changes in labor demand before hiring or firing⁶⁰, ⁶¹.
Average weekly initial claims for unemployment rate insurance: Measures new filings for jobless benefits, signaling changes in employment conditions⁵⁸, ⁵⁹.
Manufacturers' new orders for consumer goods and materials: Indicates future production and consumer demand⁵⁶, ⁵⁷.
ISM® Index of New Orders: A survey-based measure of new orders in the manufacturing sector.⁵⁵
Manufacturers' new orders for nondefense capital goods excluding aircraft orders: Reflects business investment intentions.⁵³, ⁵⁴
Building permits for new private housing units: An early signal for residential construction activity.⁵¹, ⁵²
S&P 500® Index of stock prices: Reflects investor expectations about future corporate profits and economic conditions.
⁴⁹, ⁵⁰8. Leading Credit Index™: A composite of six financial indicators related to credit conditions and investor sentiment.
9.⁴⁸ Interest rates spread (10-year Treasury bonds less federal funds rate): Also known as the yield curve, an inverted or narrowing spread can signal economic slowdowns.
10⁴⁶, ⁴⁷. Average consumer confidence for business conditions: An expectations-based component reflecting consumer outlook.

E⁴⁴, ⁴⁵ach component contributes to the overall movement of the index based on its historical correlation with the business cycle and its volatility. Th⁴³e aggregation aims to smooth out the noise from individual indicators, providing a clearer signal.

#⁴²# Interpreting the Conference Board Leading Economic Index

Interpreting the Conference Board Leading Economic Index involves analyzing its month-over-month changes, its six-month annualized growth rate, and its diffusion index. A sustained decline in the LEI, especially over several months, typically signals an upcoming contraction or slowing down of the economy. Co⁴¹nversely, a consistent increase suggests an economic expansion is likely in the near future.

T⁴⁰he Conference Board often emphasizes the "3Ds" for interpretation: Duration, Depth, and Diffusion.

³⁹ Duration refers to how long a decline or increase has lasted. Persistent trends are more significant than short-term fluctuations.
³⁸ Depth quantifies the magnitude of the change. A deeper plunge in the index suggests a more severe economic contraction.
³⁷ Diffusion measures how widespread the changes are across the ten components. If a majority of the components are moving in the same direction, it provides a stronger signal. Fo³⁶r example, a diffusion index below 50% indicates that most LEI components are falling, reinforcing a signal of potential economic downturn.

H³⁵istorically, the LEI tends to peak about 11-12 months before a recession begins. A ³⁴decline of more than 4% over a six-month period has been cited as an indicator of recessionary territory. Ho³³wever, it is crucial to consider the broader economic context and other economic indicators when evaluating the LEI's signal, as it is not a perfect predictor and can sometimes give false signals.

#³²# Hypothetical Example

Imagine it's the beginning of 2026, and a financial analyst is using the Conference Board Leading Economic Index to assess the economic outlook. In January 2026, the LEI registers a value of 105.0. By February, it drops to 104.5, and by March, it falls further to 103.8. This consistent three-month decline catches the analyst's attention.

Upon closer inspection, the analyst notes that several key components of the LEI are contributing to the decline. Manufacturers' new orders for consumer goods have softened, initial claims for unemployment rate insurance have seen a steady increase, and consumer confidence in future business conditions has dipped. Although the monthly changes are relatively small, the sustained downward trend and the fact that multiple components are moving in the same direction suggest a potential slowdown.

The analyst observes the six-month annualized growth rate of the LEI, which has turned negative, and the diffusion index, which shows that a majority of the components are declining. Based on these signals from the Conference Board Leading Economic Index, the analyst might advise clients to prepare for slower economic growth in the latter half of 2026, potentially recommending a shift in investment strategies towards more defensive assets.

Practical Applications

The Conference Board Leading Economic Index is a widely used tool across various sectors of finance and economics.

Investment Decisions: Investors and portfolio managers closely monitor the LEI to inform their asset allocation strategies. A rising LEI may suggest favorable conditions for cyclical stocks that perform well during economic expansion, such as technology or consumer discretionary companies. Conversely, a falling LEI could signal an impending downturn, leading investors to consider defensive stocks like utilities or consumer staples, which tend to be more resilient during periods of economic contraction. Un³¹derstanding the LEI can also guide decisions in the bond market, as economic slowdowns can influence interest rates.
Business Strategy: Companies use the Conference Board Leading Economic Index to make strategic business decisions. For example, a strong LEI might encourage businesses to expand production, increase hiring, or invest in new projects, anticipating higher demand. A weakening LEI, however, could prompt businesses to re-evaluate capital expenditures, manage inventory levels more cautiously, or slow down hiring plans.
³⁰ Policymaking: Government agencies and central banks, such as the Federal Reserve, incorporate the LEI and other leading indicators into their analysis to assess the health of the economy. While central banks use a wide range of data, indicators like the LEI can provide context for decisions regarding monetary policy, such as adjusting the federal funds rate.
²⁸, ²⁹ Academic Research and Economic Analysis: Economists and researchers frequently utilize the LEI as a data point in their models for economic forecasting and to study the dynamics of the business cycle. For instance, the National Bureau of Economic Research (NBER), the official arbiter of U.S. business cycle dates, considers a broad array of economic data, including indicators related to those in the LEI, when determining the start and end of recessions.

#²⁷# Limitations and Criticisms

While the Conference Board Leading Economic Index is a valuable tool for economic forecasting, it is not without limitations or criticisms. It is essential to approach its signals with a balanced perspective.

One common criticism is that the LEI is not a perfect predictor and can occasionally issue false signals or be slow to react to unprecedented economic shifts. Fo²⁶r example, the LEI was relatively flat prior to the 2008-2009 recession, leading The Conference Board to revise its components in 2012 to improve its accuracy. Mo²⁵re recently, the LEI signaled a recession for an extended period, even as other indicators like job creation and consumer spending remained robust, prompting The Conference Board to adjust its forecast regarding an imminent recession in early 2024.

A²⁴nother point of contention is that while the LEI can indicate general trends, its direct utility for predicting specific market moves, such as stock prices, can be limited. So²³me components of the LEI, like the S&P 500 and consumer confidence, are themselves influenced by current market sentiment, potentially making the index more reflective of prevailing conditions rather than purely predictive.

F²²urthermore, the structure of the U.S. economy has evolved, with services playing a much larger role than manufacturing. Critics suggest that the LEI, with its significant manufacturing-related components, might not fully capture the dynamics of a service-dominated economy. Th²¹is can lead to situations where manufacturing-specific weaknesses, while impacting the LEI, do not necessarily translate into a broad economic downturn if the services sector remains strong.

Therefore, relying solely on the Conference Board Leading Economic Index for investment or business decisions can be risky. Analysts often advocate for using the LEI in conjunction with other types of economic indicators, including coincident and lagging indicators, and considering qualitative factors such as global economic conditions and fiscal policy.

#²⁰# Conference Board Leading Economic Index vs. Coincident Economic Index

The Conference Board publishes a suite of three main economic indexes: the Leading Economic Index (LEI), the Coincident Economic Index (CEI), and the Lagging Economic Index (LAG). Wh¹⁸, ¹⁹ile all three provide insights into the business cycle, they do so from different temporal perspectives, often leading to confusion for those new to economic forecasting.

The Conference Board Leading Economic Index (LEI) is designed to predict future economic movements, typically anticipating turning points in the economy by several months. It¹⁶, ¹⁷s components are chosen because they tend to shift direction before the broader economy does, offering an early warning system for periods of economic expansion or recession.

In contrast, the Coincident Economic Index (CEI) measures the current state of the economy. It¹⁴, ¹⁵s components move roughly at the same time as the overall economic activity, providing a real-time snapshot of economic health. Ke¹³y components of the CEI include non-agricultural payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production. Th¹¹, ¹²erefore, if the LEI is a forecast, the CEI is a report of what is happening now.

Confusion often arises because market participants might see a declining LEI suggesting a slowdown, while the CEI continues to show strong current economic activity. Th¹⁰is can occur as the LEI anticipates future conditions, while the CEI reflects the present. A sustained divergence between the two, where the LEI falls while the CEI rises, can indicate that while current conditions are strong, headwinds are building for the near future. Ec⁹onomists typically look for confirmation across these indexes; a decline in both the LEI and CEI strongly signals an economic downturn.

#⁸# FAQs

How often is the Conference Board Leading Economic Index released?

The Conference Board Leading Economic Index is released monthly by The Conference Board. These releases typically occur around the third week of each month, providing updated insights into economic trends.

#⁶, ⁷## What is a "good" or "bad" reading for the LEI?
There isn't a specific "good" or "bad" numerical reading for the LEI in isolation. Instead, the focus is on the direction and persistence of its movement, as well as the rate of change. A sustained upward trend indicates positive economic expansion, while a sustained downward trend suggests an impending economic slowdown or recession. An⁵alysts pay close attention to the six-month percentage change and the diffusion index, which measures how many of the ten components are improving or worsening.

#⁴## Can the Conference Board Leading Economic Index predict stock market movements?
While the LEI can offer insights into the broader economic environment that influences stock prices, it is not a direct predictor of specific stock market movements. Th³e stock market itself is one of the ten components of the LEI, meaning the index is already influenced by market sentiment. It²'s best used to anticipate general economic trends that might affect corporate earnings and investor confidence, rather than as a precise tool for timing market entries or exits.

Is the LEI the only economic indicator I should follow?

No, the LEI should not be the only economic indicator you follow. While it is a valuable forward-looking tool, a comprehensive understanding of the economy requires examining a wide array of data. This includes coincident indicators, which reflect the current state of the economy, and lagging indicators, which confirm past trends. Ad¹ditionally, other factors like inflation, monetary policy decisions by central banks, and global economic events play crucial roles in the overall economic outlook.