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posted on 19 July 2015

Leading Index Review: May 2015 Philly Fed Leading Index Has Been Downwardly Revised

Written by Steven Hansen

This leading index continues to be recalculated - and is now forecasting stable but relatively week growth for the remainder of the year. A review of all major leading indicators follows - and no leading index is particularily strong.

Note that this index is not accurate in real time as it is subject to backward revision, Per the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the leading indexes for the 50 states for May 2015. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Forty state coincident indexes are projected to grow over the next six months, while 10 are projected to decrease. For comparison purposes, the Philadelphia Fed has also developed a similar leading index for its U.S. coincident index, which is projected to grow 1.4 percent over the next six months.

[click on graphic to enlarge]

Current and Historical Index Values

Month Value
January 2013 1.77
February 2013 1.51
March 2013 1.55
April 2013 1.62
May 2013 1.68
June 2013 1.67
July 2013 1.87
August 2013 1.47
September 2013 1.57
October 2013 1.58
November 2013 1.47
December 2013 1.55
January 2014 1.86
February 2014 1.77
March 2014 1.84
April 2014 2.07
May 2014 1.97
June 2014 1.92
July 2014 2.09
August 2014 2.14
September 2014 2.05
October 2014 1.89
November 2014 1.59
December 2014 1.45
January 2015 1.12
February 2015 1.38
March 2015 1.44
April 2015 1.37
May 2015 1.40

This index has been noisy, but remains well above 1%.

The Other Leading Indicators

The leading indicators are to a large extent monetary based. Econintersect's primary worry in using monetary based methodologies to forecast the economy is the current extraordinary monetary policy which may (or may not) be affecting historical relationships. This will only be known at some point in the future. Econintersect does not use any portion of the leading indicators in its economic index. All leading indices in this post look ahead six months - and are all subject to backward revision.

Chemical Activity Barometer (CAB) - The CAB is an exception to the other leading indices as it leads the economy by two to fourteen months, with an average lead of eight months. The CAB is a composite index which comprises indicators drawn from a range of chemicals and sectors. Its relatively new index has been remarkably accurate when the data has been back-fitted, however - its real time performance is unknown - you can read more here. A value above zero is suggesting the economy is expanding. Econintersect's analysis of this index is [here].

z chemical_activity_barometer.png

ECRI's WLI short term trend is flat and barely in positive territory. Econintersect's review of this index is [here].

Current ECRI WLI Index:

The Conference Board's Leading Economic Indicator (LEI) - Looking at the historical relationships, this index's 3 month rate of change must be in negative territory many months (6 or more) before a recession occurred. Ths index is in positive territory and improving - implying any recession is months away. Econintersect's review of this index is [here].

Nonfinancial leverage subindex of the National Financial Conditions Index - a weekly index produced by the Chicago Fed signals both the onset and duration of financial crises and their accompanying recessions. Econintersect has some doubt about the viability of this index as its real time performance has been subject to significant backward revision. In other words the backward revision is so large that one really does not know what the current situation is. The chart below shows the current index values, and a recession can occur months to years following the dotted line below crossing above the zero line.

Leading Indicators Bottom Line - no recession in the next six months but most suggesting moderate but flat economic growth:

  • Chemical Activity Barometer (CAB) is in expansion territory, and its rate of growth is accelerating.
  • ECRI's WLI continues to suggest there will be little growth over the next six months but this index is currently decelerating.
  • The Conference Board (LEI) is indicating modest but accelerating growth over the next 6 months.
  • The Philly Fed's Leading Index is indicating moderate but flat economic growth.
  • The Chicago Fed's Nonfinancial leverage subindex is not warning a recession could be near.

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