Big Changes Come to the December 2011 Leading Economic Index – Global Economic Intersection
Posted bySteven Hansen	 27 January 2012 31 January 2012 2 Comments on Big Changes Come to the December 2011 Leading Economic Index	
Based on criticisms of their “rocket ship” index, the Conference Board made sweeping changes to their Leading Economic Index. The changes are as dramatic as night-and-day.
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in December to 94.3 (2004 = 100), following a 0.2 percent increase in November and a 0.6 percent increase in October. This month’s data inaugurates a number of major changes to the components and calculation of the LEI.
To begin to understand the magnitude of the change, here is last month’s index which shows the LEI at the highest level in history:
And here is the December 2011 new and improved LEI which shows the index at levels below the pre-2007 recession – as well as showing some turbulence in the indicator’s post recession climb:
“Revised figures show that adding the new Leading Credit Index™, in conjunction with other changes, makes the LEI a more accurate predictor of U.S. business cycles since 1990,” said Ataman Ozyildirim, economist at The Conference Board. “The improvement is especially pronounced before and during the 2008-2009 recession, and during the current expansion. In December, the LEI for the U.S. increased again. The gain was widespread among the leading indicators, suggesting economic conditions should improve in early 2012. However, the LEI gain in December was held back by negative contributions from the new Leading Credit Index — which indicates weak credit and financial conditions — and from consumer expectations for business and economic conditions.”
Added Ken Goldstein, economist at The Conference Board: “The CEI and other recent data reflect an economy that ended 2011 on a positive note and the LEI provides some reason for cautious optimism in the­ first half of 2012. This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam. Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.”
What changed you might ask? The following is a markup of the components of the index:
There were also changes to methodology.
As a comparison to the LEI, ECRI’s WLI (which Econintersect reports on weekly) is negative indicating a contracting economy six months from today. Further ECRI issued a recession “call” stating that the USA economy will begin contracting before the end of the 1Q2012 – in direct contradiction of the LEI.
The data does not exist to establish what The Conference Board’s LEI values would have been in real time – at this point only the final numbers are known. Unfortunately, knowing the current values is no assurance that a recession is or is not imminent.
Posted bySteven Hansen 27 January 2012 31 January 2012 Posted inLEITags: CEI, Conference Board, economic indicator, Economy, ECRI, forecast, LEI, recovery, Steven Hansen	
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