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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