September 2011 Leading Economic Index Shows Growth to Continue

The September 2011 release The Conference Board’s Leading Economic Indicator (LEI) values show the economy is and will be growing. Yet, using unseen analysis – the originators of the index continue to talk it down.

Says Ataman Ozyildirim, economist at The Conference Board: “September data shows moderating growth in both the LEI and the CEI. The weaknesses among the leading indicator components have become slightly more widespread in September. Moreover, the CEI suggests current economic conditions have been slow, with weak gains in all four components over the past six months. The slow pace in the LEI suggests a growing chance that this sluggish economy is going to be here for a while.”

Says Ken Goldstein, economist at The Conference Board: “The LEI is pointing to soft economic conditions through the end of 2011. There is a risk that already low confidence – consumer, business and investor – could weaken further, putting downward pressure on demand and tipping the economy into recession. The probability of a downturn starting over the next few months remains at about 50 percent.”

This leading indicator is used to predict growth over the coming six months.

The LEI increased 0.2% in September putting index growth at a 3.6% annual rate over the last six months. The implication to the casual observer is that the economic growth should be 3.6% in the next six months.

This index is based to a large extent on monetary measures which have been extraordinarily strong with stimulative interest rates set at artificially low levels by the Federal Reserve. For this reason, the hyper-values produced by this index are not necessarily linked to any real economic dynamics. Econintersect does not believe this index is properly indicating the current economic dynamics. The discussion published by Conference Board Economists seem to indicate that they have the same opinion.

On the other hand, ECRI’s WLI (which Econintersect reports on weekly) has the exact opposite trend lines indicating a contracting economy six months from today.  Further ECRI issued a recession “call” stating that the USA economy will begin contracting within 6 months.

Econintersect believes the USA economy is currently weakly expanding but very close to levels that historically indicated that a recession is underway (analysis here).

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