Leading Economic Indicator: Going Up Like a Rocket Ship

Repeating Econintersect’s comment last month – the Leading Economic Index continues its ballistic path – in March 2011:

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in March to 114.1 (2004 = 100), following a 1.0 percent increase in February, and a 0.2 percent increase in January.

Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI continued to increase in March, pointing to strengthening business conditions in the near term. The March increase was led by the interest rate spread and housing permits components, while consumer expectations dropped. The U.S. CEI, a monthly measure of current economic conditions, also continued to rise, led by gains in industrial production and employment.”

Says Ken Goldstein, economist at The Conference Board: “The U.S. LEI continues to point to sustained economic growth through year end. Global disruptions, including unrest in the Middle East, rising oil prices and the Japan earthquake, may have some repercussions. However, it remains to be seen what the impact of these shocks will be on the United States and the broader global economy.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.2 percent in March to 102.9 (2004 = 100), following a 0.1 percent increase in February, and a 0.5 percent increase in January. The LEI continues to be at an all-time historical high while the CEI is still about 4.3 percent below its level at the beginning of the most recent recession.

This index is based to a large extent on monetary measures which have been extraordinarily stimulative with 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.

It is confusing why The Conference Board does not comment on these historically unprecedented monetary measures which are creating a forward looking index which has questionable forward looking ability.

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