Written by Steven Hansen
This post is a review of all major leading indices showing their values as of the date of this post. Generally, most leading indicators have weakened.
Analyst Opinion of the Leading Indicator Forecasts
Most of the leading indicators are based on factors that 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’s Weekly Leading Index, Econintersect’s Economic Forecast, 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. Note that ECRIs WLI has an improving trend line.
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.
Leading Indicators Conclusion: At this point, Econintersect continues to see NO particular dynamic at this time which will deliver noticeably better growth in the foreseeable future – and no indicator is yet forecasting a recession over the next six months.
- Chemical Activity Barometer (CAB) growth rate is below average for times of economic expansion and its rate of growth has significantly declined.
- ECRI’s WLI is forecasting a business cycle contraction and is now at the Great Recession levels.
- The Conference Board (LEI) 6 month rolling average suggesting little growth over the next 6 months – but again marginally improved this month.
- The Philly Fed’s Leading Index continued backward revisions make this index worthless – and it is showing some improvement
- Econintersect’s Economic Index insignificantly improved this month, remains historically low, and we advised readers that the data used to form this index had yet to show the effects of the coronavirus pandemic.
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 January 2020. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Fifty state coincident indexes are projected to grow over the next six months.
[click on the graphic to enlarge]
z philly fed leading.PNG
Index Values Over the Last 12 Months
This index has been noisy and is near the 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 that 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)
The LEI has historically begun contracting well 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 that 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, 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)
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![[click on the graphic to enlarge]](https://econintersect.com/images/z%20philly%20fed%20leading.PNG){kind=link}