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posted on 05 October 2017

August 2017 Leading Index Review: Growth Trends Slow

Written by Steven Hansen

This post is a review of all major leading indicators follows - and their trends are generally indicating slower growth.

Analyst Opinion of the Leading Indicator Forecasts

Most of the leading indicators are based on factors which are known to have significant backward revisions - and one cannot take any of their trends to the bank. The only indicators with minimal backward revision are ECRI, RecessionALERT, and the Chemical Activity Barometer. Unfortunately, the Chemical Activity Barometer is targeted to the industrial sector of the economy - and at best seems to be a coincident indicator, not a leading indicator.

The leading indicators are to a large extent monetary based. Econintersect does not use any portion of the leading indicators in its economic index. Most leading indices in this post look ahead six months - and are all subject to backward revision.

At this point, Econintersect sees NO particular dynamic at this time which will deliver noticeably better growth in the foreseeable future - and the majority of the indicators are forecasting a slower rate of growth.

Philly Fed Leading Index

The Philly Fed Leading Index for the United States is continuously recalculated. 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 August 2017. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Thirty-seven state coincident indexes are projected to grow over the next six months, and 13 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 1.3 percent over the next six months.

[click on graphic to enlarge]

z philly fed leading.PNG

Index Values Over the Last 12 Months

This index has been noisy, but remains above 1%, and is below mid-range of the values seen since the end of the Great Recession.

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. Note that the authors of this index want to be measured against industrial production. Econintersect's analysis of this index is [here].

z chemical_activity_barometer.png

ECRI WLI Index

ECRI's Weekly Leading Index - the methodology used in created this index is not released but is widely believed to be monetary based. Econintersect's review of this index is [here].

The Conference Board's Leading Economic Indicator (LEI)

Econintersect's review of this index is [here]. The LEI has historically dropped below zero in its six-month moving average anywhere between 2 to 15 months before a recession.

Econintersect Economic Index

Unlike the other leading indices, Econintersect Leading Index (LEI) only forecasts one month in advance.

The EEI is a non-monetary based economic index which counts "things" that have shown to be indicative of direction of the Main Street economy at least 30 days in the future. Note that the Econintersect Economic Index is not constructed to mimic GDP (although there are correlations, but the turning points may be different), and tries to model the economic rate of change seen by business and Main Street. The vast majority of this index uses data not subject to backward revision.

Econintersect Economic Index (EEI) with a 3 Month Moving Average (red line)

RecessionAlert.com

RecessionALERT.com has constructed a Weekly Leading Economic Index (WLEI) for the U.S Economy that draws from over 50 time-series from the following broad categories - Corporate Bond Market Composite, Treasury Bond Market Composite, Stock Market Composite, Labor Market Composite, and Credit Market Composite.

Leading Indicators Conclusion: Not indicating a recession over the next six months.

  • Chemical Activity Barometer (CAB) growth rate is near average for times of economic expansion and its rate of growth is decelerating.
  • ECRI's WLI is forecasting no growth in the business cycle six months from today.
  • The Conference Board (LEI) 6 month rolling average suggesting an improving rate of growth over the next 6 months.
  • The Philly Fed's Leading Index continued backward revisions make this index worthless - however its growth trend currently showing marginally improving modest growth.
  • The Chicago Fed's Nonfinancial leverage subindex is not close to warning a recession.
  • RecessionAlert's Weekly Leading Economic Index is showing slowing growth - but is still forecasting about average growth seen since the Great Recession.


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