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posted on 20 April 2017

March 2017 Conference Board Consumer Confidence Shows "Continued Economic Growth"

Written by Jill Mislinski

The Latest Conference Board Leading Economic Index (LEI) for March increased to 126.7 from 126.2 in February. The 0.4 percent month-over-month gain beat the 0.2 percent increase forecast by Investing.com.

Here is an excerpt from the Conference Board press release.

The Conference Board LEI for the U.S. increased again in March, with the majority of its components making positive contributions except for average weekly manufacturing hours and weekly initial claims for unemployment insurance (inverted). In the six-month period ending March 2017, the leading economic index increased 2.4 percent (about a 4.9 percent annual rate), much faster than its growth of 1.1 percent (about a 2.1 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have become very widespread.

Putting the Latest Number in Context

The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end, we have highlighted recessions and included GDP. The regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference.

Consumer Confidence

On a percentile basis, the latest reading is at the 91st percentile of all the monthly data points since June 1977, up from the 86th percentile the previous month.

For an additional perspective on consumer attitudes, see the most recent Reuters/University of Michigan Consumer Sentiment Index. Here is the chart from that post.

Consumer Sentiment

And finally, let's take a look at the correlation between consumer confidence and small business sentiment, the latter by way of the National Federation of Independent Business (NFIB) Small Business Optimism Index. As the chart illustrates, the two have tracked one another fairly closely since the onset of the Financial Crisis, although a spread appeared in the second half of 2015 and continued into 2016.

Here is a log-scale chart of the LEI series with documented recessions as identified by the NBER. The use of a log scale gives us a better sense of the relative sizes of peaks and troughs than a more conventional linear scale.

Conference Board's LEI

For additional perspective on this indicator, see the latest press release, which includes this overview:

"The March increase and upward trend in the U.S. LEI point to continued economic growth in 2017, with perhaps an acceleration later in the year if consumer spending and investment pick up," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "The gains among the leading indicators were very widespread, with new orders in manufacturing and the interest rate spread more than offsetting declines in the labor market components in March."

For a better understanding of the relationship between the LEI and recessions, the next chart shows the percentage-off the previous peak for the index and the number of months between the previous peak and official recessions.

LEI from Peak

LEI and Its Six-Month Smoothed Rate of Change

Based on suggestions from Neile Wolfe of Wells Fargo Advisors, LLC and Dwaine Van Vuuren of RecessionAlert, we can tighten the recession lead times for this indicator by plotting a smoothed six-month rate of change to further enhance our use of the Conference Board's LEI as a gauge of recession risk.

Smoothed LEI

As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. Here is a twelve month smoothed out version, which further eliminates the whipsaws:


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