Leading Economic Indicators - Explained
What are Leading Economic Indicators?
Written by Jason Gordon
Updated at April 24th, 2022
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What are Leading Economic Indicators?
The Conference Board publishes the Leading Economic Indicators also known as Composite Index of Leading Indicators to predict any shifts in the global economy. How is this possible? Well, the index is comprised of 10 economic indicators, which change even before any change in the global economy is felt.
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How are Leading Economic Indicators Used?
There are many reasons why economists and even businesses use this index. For example, many economists will assess the leading economic indicators if they wish to understand or even predict the movement of the economy. Investors and businesses, on the other hand, can correlate the index with cycles in business and the current economic conditions to know the future economic environment. Here are the 10 components of Leading Economic Indicators:
- Mean weekly hours worked by manufacturing employees
- Mean number of original unemployment insurance applicants
- Amount of new orders that manufacturers make for consumer goods
- Time it takes to deliver new merchandise from suppliers to vendors
- The number of new permits for residential buildings
- New orders for capital goods i.e. those unrelated to defense
- The S&P 500 stock index
- Inflation-adjusted monetary supply in the economy
- Consumer sentiments
- The spread between short and long interest rates
As at 2018, using 2016 as the base year, the USA had an LEI of 108.1, China had an LEI 123.9, Australia had an LEI of 104.6, Brazil also had a high LEI of 116.5, Japan had an LEI of 99.8, South Korea had an LEI of 103.5, Mexico had an LEI of 104.7, Spain had an LEI of 101.5, Germany had an LEI of 102.6 and the United Kingdom had an LEI of 98.1.Established in 1916, the Conference Board is an independent research institute that comprises of a board of chairmen, trustees and other voting members. It is a non-profit organization where membership is only offered to high ranking executives. The association offers both economic and financial data to its member organization.
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