INDICATOR INSIGHTS

The LEI

As introduced in Chapter 3 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), there are several “leading indicators” that go largely unnoticed and under-utilized by the average beginner or intermediate investor. We routinely cover those that measure human emotion and market sentiment, as well as technical charts that often determine shorter term price action.  

      One such “under the radar” economic indicator that often sways the short-term sentiment of institutional traders and investors is the Leading Economic Index (LEI) report (noted in our Indicator Insights monthly blog), published monthly by an entity known as the Conference Board. This report’s official focus is to provide an early indication of “significant turning points” in the economic business cycle in the near term, and is assessed in tandem with the Coincident Economic Index (CEI), which deals with the current state of the economy, and the Lagging Economic Index (LAG), which reports the prior 6 months. 

      There are several independent categories (or components) which constitute the LEI, including the following…

Financial

·       Leading Credit Index, S&P 500 Stock Index, and Interest Rate Spread (the

            difference between 10-year bond yields and Fed Funds)

Non-Financial

·       Business Conditions -- Average Consumer Expectations (Sentiment)

·       ISM/Manufacturing -- New orders, including nondefense capital goods and consumer goods & materials, the actual Index of New Orders, and manufacturing hours logged

·       Housing -- Building permits for new private units

·       Employment – Weekly unemployment claims and rates.

      The CEI consists of only 4 components, including Payroll employment, Personal Income (less transfer payments), Manufacturing and Trade sales, and Industrial production. 

      This report is designed to signal peaks and troughs in the business cycle (about 6-7 months in advance), gauged on what is referred to as the “3D’s.” The first two, Duration - referring to the length of an up or down trend, and Depth, which represents the size of the incline or decline, are measured by the rate of change of the entire index over the past 6 months. The third, Diffusion, is a measure of how widespread the trend is among all this gauge’s component indicators, based on a scale of 0-100. A reading above 50, suggests strengthening internals (stronger as the figure moves higher), while below 50 represents a weakening (weaker as the figure declines).  

      Recently, the LEI has suffered a decline (for the past 6 months), with a continuation in both October and November of 2025, though reports have been somewhat delayed due to the government shutdown in the Fall. Despite the decline, no “recession” signal has been triggered to date. Consumer expectations and new orders have been especially weak, which is not surprising given the massive rise in employment layoffs. Using this index, a recession is signaled by the 3D’s when the 6-month Diffusion level sits under 50, and the 6-month growth rate (recently reported at -1.2%) is under -4.3%.   

      There is an additional indicator, named the Business Cycle Indicator, normally published in January, which has been postponed to June, also as a result of the delayed data. This report will also include the “revisions” we often note in our publications. 

      The LEI is a good place to start for those who prefer to follow fundamentals and underlying economic conditions as a basis to their investments. Long term trends can be identified as the numbers generally do not move very fast, and are often based on a variety of monthly figures. This index can be effective in identifying sector trend changes in advance, allowing time for adjusting one’s portfolio.  

      Shorter-term swing and day traders may keep an eye on the LEI around the time of its monthly or annual report, as emotion is more prominent during announcements of economic data, as well as earnings, news, and upgrades/downgrades. 

      Whatever your investment approach/style, continue to seek out indicators and information that will serve as a guide to likely future price moves (leading), rather than past price action (lagging).    

***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.