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Leading Economic Index® Continues Longest Decline Since Financial Crisis

Isaac Nuriani    |
Nov 24, 2023
  • LEI fell for 19 straight months.
  • Only one index component was positive in October.
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Recently, I’ve devoted space here to discussing the apparent contradiction of productive economic numbers occurring at the same time that consumer sentiment tumbles. 

By now, you might be at least broadly familiar with some of the most popular and often-repeated numbers, including unemployment still below 4% and third-quarter annualized GDP at nearly 5%.  

My guess is that you’re familiar with tanking consumer sentiment, too. The nation’s two most prominent measures of sentiment among American consumers have been on a steady decline for the last several months. The Conference Board Consumer Confidence Index® fell in October for the third consecutive month, and the University of Michigan’s Consumer Sentiment Index sank in November for the fourth consecutive month.[1] 

If you review the details of the latest sentiment surveys, you’ll find that persistent inflation and interest rates now at 22-year highs seem to be at the root of declining sentiment.[2] Still, the Biden administration seems puzzled – even frustrated – at the pessimism among consumers right now, given the general economic prosperity that policymakers seem to think characterizes the economy. 

At a press conference last month, for example, President Biden responded to a reporter’s question about why Americans don’t feel better about the economy – despite a consistently low unemployment rate – by blaming the media. 

“You all are not the happiest people in the world – what you report,” Biden said. “And I mean it sincerely. You get more legs when you’re reporting something that’s negative.”[3] 

Are Americans being unduly gloomy, and unreasonable in their unwillingness to accept the beneficial reality they’re actually living? Or are they entirely justified in their pessimism over what they see as an economy growing increasingly less responsive? 

Ultimately, the day-to-day experiences of individual consumers are going to be the most powerful determinant of their outlook for the economy. So, there’s that. But there also are “macro” measures of the broader economy…measures that seem to contradict the message being sent by low unemployment and thriving GDP numbers…which look like they validate the uninspired views held by so many Americans right now. 

For example, we learned this week that one of the U.S. economy’s most popular and widely followed leading economic indicators, The Conference Board’s aptly named Leading Economic Index (LEI), fell again in October, perpetuating its longest period of decline since the financial crisis.[4] 

Now more than a century old, The Conference Board has long been viewed as one of the world’s most renowned and respected economic think tanks.[5] Among the roles it’s principally known for is the creation of indexes designed to help pinpoint peaks and troughs in businesses cycles both here and abroad.  

One of those indexes is its U.S. LEI. Over time, that has come to be valued as one of the most respected predictive metrics available…which is why its current downward trend is seen as so important by so many. 

I’m going to spend a few minutes this week peeking into the anatomy of the LEI. But from there, I’ll tear into details of the latest index numbers and shine a light on a metric that right now looks like it reveals a particularly significant degree of underlying economic weakness throughout the economy. 

Finally, I’ll spend a little time discussing an asset some people suggest could be a productive performer in the new year…productive precisely because of the unfortunate economic climate that metrics such as the Leading Economic Index suggest might dominate in 2024. 

First, though, let’s see if we can gain a better understanding of what makes the Conference Board LEI such a big deal in the first place. 

Leading Economic Index “Stands Head and Shoulders” Above Other Predictive Measures 

The U.S. Leading Economic Index is described by The Conference Board as “a predictive variable that anticipates (or ‘leads’) turning points in the business cycle by around 7 months.”[6] In other words, it doesn’t seek to confirm current and past economic activity, which is the role of coincident and lagging economic indicators (such as quarterly gross domestic product, or GDP, growth). Instead, it ventures into dicier analytic territory: seeking to be something of a crystal ball, a metric that can at least suggest what lies ahead for the economy.  

In aspiring to create a measure that succeeds in doing this, The Conference Board concluded the datapoint couldn’t be represented by just one, or two or even three component pieces. As a result, the LEI was constructed using 10 individual component measures that the board collectively believes provide as accurate a way as possible to predict what lies ahead for the economy. 

The 10 component measures are: 

  • Average weekly hours worked by those employed in the manufacturing sector. 
  • Average weekly initial claims for unemployment insurance. 
  • New orders received by manufacturers for consumer goods and materials. 
  • The new-orders index, a component measure of the Institute for Supply Management’s monthly purchasing managers’ index (PMI). 
  • The number of new orders for capital goods outside of the defense sector and excluding orders for aircraft. 
  • The number of building permits issued for private-housing units. These include single-family residences and apartments.
  • The S&P 500 stock index. 
  • The Leading Credit Index (LCI), another proprietary measure of The Conference Board. The LCI gauges credit conditions throughout the economy. When LCI reflects improving credit conditions, it has a positive impact on the LEI. 
  • The spread between long- and short-term interest rates as represented by the benchmark 10-year Treasury note and federal funds rate. It’s commonly referred to as the yield curve. When the figure is negative (which means short-term rates are actually higher than long-term rates), the yield curve is said to be inverted and the likelihood of recession greater. That’s because longer-term rates that are lower than shorter-term rates – an anomaly – suggest that investors are growing uneasy about the economy’s near-term prospects and rushing into longer-term government-debt instruments and away from market exposure.   
  • Average consumer expectations for business conditions, a component index that gauges consumer expectations of business conditions looking 6 to 12 months ahead.[7]  

These component measures are carefully weighted and analyzed in a proprietary fashion by The Conference Board to produce its index figure each month.  

As for the usefulness of the LEI in forecasting economic downturns, it’s by no means foolproof. But reviews of the metric are generally favorable. A few months back, a Motley Fool article said that in the realm of leading indicators, the LEI “stands head and shoulders above most other predictive economic tools.”[8] 

J.J. Kinahan, chief market strategist at TD Ameritrade, has said the metric’s predictive “powers” are valuable, noting, “Historically, the LEI has turned down before the economy has turned down.”[9] 

Similarly, Sam Stovall, chief investment strategist at CFRA, sees a material benefit to including the LEI in any set of predictive analytics tools. “I find that a six-month percent change in LEI has been a fairly reliable indicator of economic recession,” Stovall says. “Every recession was preceded by a decline in a rolling 6-month percent change LEI.”[10] 

Which brings us back to the LEI’s most recent results. The metric’s steady decline over the last 19 consecutive months puts its current downward trend on par with some of the most historically relevant declines for the measure in U.S. economic history. 

Given that, a closer look at the numbers is in order.  

Leading Economic Index Now “Signaling Recession in the Near Term” 

Heading into this week, it wasn’t exactly a surprise that The Conference Board’s Leading Economic Index was forecast to fall in October. After all, it already had fallen for the previous year and a half, and there wasn’t any apparent reason it wouldn’t decline again. 

What was something of a surprise, however, was that the index fell even harder than projected. The consensus estimate had the metric tumbling by 0.6% month over month in October. Instead, it fell by 0.8%, to 103.9.[11]  

The index contracted by 3.3% over the six-month period from April through October 2023. That is a moderation from the 4.5% contraction of the index during the prior six-month period from October 2022 through April 2023 (more about the significance of six-month performance measures in just a bit).[12] 

But it’s still down…which is the only direction the index seems to know these days. 

“The US LEI trajectory remained negative, and its six- and twelve-month growth rates also held in negative territory in October,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.[13] 

“After a pause in September, the LEI resumed signaling recession in the near term,” Zabinska-La Monica added, citing “elevated inflation, high interest rates, and contracting consumer spending—due to depleting pandemic saving and mandatory student loan repayments” as the cornerstone reasons for the board’s recession forecast.[14] 

Four metric components, in particular, proved to be the principal “drags” on the index last month.  

“Deteriorating consumers’ expectations for business conditions, lower ISM Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline,” Zabinska-La Monica noted.[15] 

The remaining components were either absolutely or effectively flat for the month, except the building-permits measure, which was incrementally positive.[16]  

In addition to the string of monthly declines that have become characteristic of the index for the last 18-plus months, the metric has been marked by several six-month periods relatively recently where it has declined by more than 4%.  

I’ll let the folks at The Conference Board clarify why that’s significant: 

When the US LEI falls more than 4 percent over a span of six months, it enters recessionary territory.[17]  

The Motley Fool recently noted that year-over-year declines of 4% or more can be an especially bad sign for the economy, as well. The Fool pointed out that, on an annual basis and going back to 1959, “a drop of 4% or greater has, historically, always been followed by a U.S. recession.”[18] 

And right now, the index is down roughly 8% year over year.[19] 

Analyst: Deteriorating Conditions Could “Drive Gold Prices a Lot Higher” 

Where the index goes from here, no one can say, for sure. But even if it begins to rise, much of its historical performance up to this point suggests recession might be unavoidable. 

Again, that can’t be known with any real certainty. But those retirement savers who conclude that economic downturn is at least a possibility will have to decide how they want to proceed. 

Many ultimately might decide against doing anything at all. In some cases, as we’ve seen with some consumers who open accounts with our company, that course of action might be rooted less in an actual, explicit decision to do nothing, and more in an inability to keep from procrastinating.    

Some investors, however, might try to do something to help ensure their savings is prepared to withstand the impact of a possibly recessionary economy. One step they could consider is to include assets in their holdings that have the potential to thrive in the kinds of monetary-policy environments that typically characterize recessions. 

Precious metals are examples of assets like that. Speculation is growing in some corners that interest rates could be cut sharply next year as an economic downturn takes shape (suggested by datapoints such as The Conference Board’s Leading Economic Index). For example, UBS recently projected that slowing inflation and mounting recessionary pressures in 2024 could result in interest rates being at half their current levels by the end of next year.[20] 

Such a significant pivot back to accommodative monetary policy could have a favorable impact on precious metals. In fact, that’s something analysts such as Tavi Costa of Crescat Capital are anticipating. 

Referring to the possibility of a deteriorating economy, Costa recently said, “That is what will drive the gold prices a lot higher.” Costa added that “the list of macro reasons to own the metal right now is larger than at any other time in history.”[21] 

Where the economy, monetary policy and metals prices go in the near term remains to be seen, of course. But if broad-based economic uncertainty – as evidenced by the Leading Economic Index – continues, it won’t be surprising to see at least a portion of the retirement-savings community turn to particularly rate-sensitive assets such as gold and silver for help. 



[1] The Conference Board, “US Consumer Confidence Fell Again in October” (October 31, 2023, accessed 11/23/23); Dan Burns, Reuters.com, “US consumer sentiment drops again in November, inflation expectations rise” (November 10, 2023, accessed 11/23/23). 
[2] Diccon Hyatt, Investopedia, “Federal Reserve Holds Interest Rate At 22-Year High” (November 1, 2023, accessed 11/23/23). 
[3] Joey Garrison, USA Today, “President Biden blames the media for Americans’ negative views of the economy” (October 6, 2023, accessed 11/23/23). 
[4] Liz Ann Sonders (@LizAnnSonders), “Leading Economic Index (LEI) from @Conferenceboard,” Twitter (August 18, 2023, accessed 11/23/23). 
[5] The Conference Board, “About Us” (accessed 11/23/23).  
[6] The Conference Board, “LEI for the U.S. Declines Again in October” (accessed 11/23/23). 
[7] Ibid. 
[8] Sean Williams, The Motley Fool, “This Economic Indicator Hasn’t Been Wrong in 64 Years — Is Its Flawless Streak About to End?” (July 27, 2023, accessed 11/23/23). 
[9] TD Ameritrade, “Conference Board LEI: A Recession Indicator?” (October 25, 2016, accessed 11/23/23). 
[10] Ibid. 
[11] Connor Smith, Barron’s, “Nvidia, Lowe’s, Best Buy, and More Stocks to Watch This Week” (November 19, 2023, accessed 11/23/23). 
[12] The Conference Board, “LEI for the U.S. Declines Again.” 
[13] Ibid. 
[14] Ibid. 
[15] Ibid. 
[16] Ibid. 
[17] The Conference Board, “Navigating the Economic Storm” (accessed 11/23/23). 
[18] Sean Williams, The Motley Fool, “This Has Happened Only 3 Times Since 1959, and the Previous 2 Instances Led to Serious Bear Markets” (September 26, 2023, accessed 11/23/23). 
[19] Ibid. 
[20] Nick Robertson, The Hill, “Fed will cut interest rates deeply this spring, new estimate says” (November 14, 2023, accessed 11/23/23). 
[21] Anna Golubova and Michelle Makori, Kitco.com, “Neglected gold trade: Why wealth advisors, hedge funds & investors are about to flock to gold in a major way – Tavi Costa” (November 22, 2023, accessed 11/23/23). 

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