Leading Economic Indicators
Leading economic indicators are a set of statistical metrics that tend to change before the economy as a whole changes, providing advance signals of future economic activity and helping economists, policymakers, and investors anticipate turning points in the business cycle.
The Conference Board publishes the most widely cited composite index: the Leading Economic Index (LEI) for the United States, which combines ten components into a single monthly reading. The ten components are: average weekly manufacturing hours, average weekly initial unemployment insurance claims, manufacturers' new orders for consumer goods, the ISM new orders index, building permits for new private housing units, the S&P 500 stock index, the Leading Credit Index (a composite of six financial indicators), the interest rate spread between the 10-year Treasury and the federal funds rate, average consumer expectations for business conditions, and new orders for capital goods.
Each component is chosen because economic theory and historical data suggest it reliably moves ahead of overall economic activity. Building permits, for example, signal construction activity that will happen months later. Manufacturing hours signal production changes before they show up in output data. Stock prices incorporate forward-looking expectations. The yield curve spread reflects credit market and monetary policy conditions that have historically led economic cycles by 6–18 months.
A sustained decline in the LEI across multiple months — especially when 3 or more of the 10 components are falling simultaneously — has historically been associated with recessions. From mid-2022 through 2023, the LEI fell for 24 consecutive months, its longest streak of declines since the Great Recession, though the anticipated recession (as of 2024) had not yet materialized, sparking debate about whether changed economic structures had reduced the index's predictive power.
For investors, the LEI provides a structured, objective way to track the overall trajectory of forward-looking economic signals. Rather than trying to forecast the economy through intuition or any single data point, the LEI aggregates multiple data streams. Portfolio managers who monitor the LEI trend can gradually adjust sector allocations — rotating toward defensives as the LEI deteriorates, or toward cyclicals as it improves — in a rules-based framework that reduces emotional decision-making.