Believe it or not, the index of Leading Economic Indicators is actually a pretty good leading indicator.
And right now, as Asha Bangalore of Northern Trust explains, it’s flashing “RECOVERY.”
The Index of Leading Economic Indicators (LEI) increased 0.7% in June vs. a revised 1.3% gain
in May and a 1.2% jump in April. The June increase puts the year-to-year decline at 1.18%. The
trough for the year-to-year change appears to have occurred in December 2008 (-3.98%).
The year-to-year change of the LEI tracks the trough of the business cycle with a small lead (see chart
1). The mean and median leads of the year-to-year change in the LEI with reference to the troughs of the business cycle are 6.1 months and 7.0 months, respectively. Based on history, it appears that a recovery in the latter half of 2009 is gaining support. The longest lead was in the 1981-82 recession and the smallest was during the mini-1980 recession.
In June, the 0.7% increase in the LEI reflects improvements in seven out of 10 components –
factory workweek, initial jobless claims, housing permits, stock prices, interest rate spread, orders
of non-defence capital goods, and supplier deliveries.
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