Economic Outlook: Difference between revisions

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→‎3. Conference Board Leading Index

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 The LEI is comprised of 10 indicators that cover a wide range of economic activity, including job growth, housing construction, and stock prices. The index is designed to provide a broad-based look at the health of the economy and can be used to predict turning points in the business cycle.
-When the US LEI falls more than 4 percent over a span of six months, it enters recessionary territory. One way to track the LEI is by looking at the six-month change in the index (Chart 2). This measure tells us whether the economy is gaining or losing momentum and can be used to predict changes in direction. While tracking the six-month change in the LEI is a good way to assess whether a recession is on the horizon, it’s not perfect. The signal provided by the LEI can be refined by considering a metric known as “diffusion.” Diffusion indexes measure how widespread economic activity is across different sectors and types of economic activity (e.g., consumers, housing, financial markets, etc.). Diffusion tells us whether an economy is truly weakening or if there are just isolated pockets of weakness that do not translate into a broad downturn in overall economic activity across the board.
+When the US LEI falls more than 4 percent over a span of six months, it enters the recessionary territory. And the index 3Ds rule provides signals of impending recessions 1) when the diffusion index falls below the threshold of 50 and simultaneously 2) when the decline in the index over the most recent six months falls below the threshold of -4.0 percent. <ref>https://www.conference-board.org/topics/recession/Leading-Indicators-Recession</ref> The index has an average lead time of 7 months and has a 100% track record when the Y/Y change turns negative for 2+ months in a row.
-The 3Ds rule provides signals of impending recessions 1) when the diffusion index falls below the threshold of 50 and simultaneously 2) when the decline in the index over the most recent six months falls below the threshold of -4.0 percent. <ref>https://www.conference-board.org/topics/recession/Leading-Indicators-Recession</ref> The index has a average lead time of 7 months and has a 100% track record when the Y/Y change turns negative for 2+ months in a row.
+Current Data:
-What is the current data telling us?
 # The Conference Board Leading Economic Index® (LEI)for theU.S. decreased by 1.0 percent in December 2022 to 110.5 (2016=100), following a decline of 1.1 percent in November. The LEI is now down 4.2 percent over the six-month period between June and December 2022—a much steeper rate of decline than its 1.9 percent contraction over the previous six-month period (December 2021–June 2022).<ref>https://www.conference-board.org/topics/us-leading-indicators</ref>
-# Recession signal was hit in August 2022.<ref>https://www.conference-board.org/topics/us-leading-indicators/press/us-lei-sept-2022#:~:text=The%20Conference%20Board%20Leading%20Economic,over%20the%20previous%20six%20months.</ref>
+# The recession signal was hit in August 2022.<ref>https://www.conference-board.org/topics/us-leading-indicators/press/us-lei-sept-2022#:~:text=The%20Conference%20Board%20Leading%20Economic,over%20the%20previous%20six%20months.</ref>
-In conclusion, based on the index criteria the recession signal was hit on August 2022, and since then the index has deteriorated further. Giving the track record of the index and the lead time of 7 months, there is a high likehood that relying on this indicator the recession risks in the US economy are amplify significant in Q2 2023 onwards.
+The index criteria gave the recession signal on August 2022, and since then the index has deteriorated further. Given the track record of the index and the lead time of 7 months, risks of recession in the US economy are amplified significantly in Q2 2023 onwards.
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