The economy is a mess of contradictions. You’ve probably noticed. One day the stock market is hitting record highs, and the next, everyone is panic-posting about a looming recession because some obscure chart turned red. It’s exhausting. Amidst all this noise, there is one metric that usually sits at the center of the storm: the LEI leading economic indicator.
People track it like a hawk. Or, at least, they used to.
Lately, things have been weird. The Conference Board’s Leading Economic Index (LEI) spent a massive chunk of 2023 and 2024 screaming that a recession was coming, yet the wheels didn't fall off. The "vibecession" was real, but the actual data stayed surprisingly resilient. This has led a lot of people to ask if the LEI is actually broken or if we’re just living through a historical anomaly that refuses to play by the rules.
Basically, the LEI is a composite. It isn't just one thing. It's a weighted average of ten different components designed to signal peaks and troughs in the business cycle. When it turns down for several months in a row, history says you should probably start worrying about your portfolio. But history hasn't met the post-pandemic world yet.
What is the LEI leading economic indicator anyway?
Let's get into the weeds for a second. The Conference Board, a non-profit business membership and research group, manages this index. They aren't just guessing; they’re looking at ten specific variables that tend to shift before the rest of the economy does.
Think of it like a weather vane. It doesn't tell you if it's raining right now—you can just look out the window for that—it tells you which way the wind is blowing. If the wind starts gusting toward a storm, you might want to grab an umbrella.
The components include things like average weekly hours for manufacturing workers. If factory bosses start cutting hours, it’s usually because orders are drying up. Then you’ve got initial claims for unemployment insurance. If more people are filing for jobless benefits, the "consumer-led economy" we all talk about is in trouble. You also have building permits for new private housing units. Nobody builds a house if they think the world is ending next Tuesday.
There's also the "yield spread." This is the difference between 10-year Treasury bonds and the federal funds rate. Usually, long-term rates are higher than short-term ones. When that flips—the "inverted yield curve"—the LEI takes a hit because it signals that investors have zero confidence in the near future.
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The components aren't all created equal
Honestly, some of these metrics feel a bit "old school." Manufacturing hours are great, but the U.S. is a service-based economy now. Does a dip in factory time matter as much as it did in 1974? Maybe not. But the index also tracks the S&P 500 stock prices and the Leading Credit Index. These are much more sensitive to the modern financial plumbing.
Then there’s the ISM Index of New Orders. This is basically a survey of purchasing managers. If they’re saying "hey, we aren't ordering new stuff," that ripple effect eventually hits shipping, retail, and labor.
Why the LEI got "wrong" recently
For about two years, the LEI leading economic indicator was flashing red. Bright red. Like, "the-end-is-nigh" red. And yet, the recession didn't show up on time. This led to a lot of mud-slinging in the world of macroeconomics.
Why did it miss?
The pandemic broke the model. Usually, the components of the LEI move in a sort of synchronized dance. But the COVID-19 recovery was staggered. We had a "rolling recession" where tech slumped while travel boomed, or housing froze while manufacturing hummed along. Because the sectors didn't all fail at once, the aggregate index looked terrifying, but the actual GDP stayed positive.
Also, the labor market has been a freak of nature. Normally, when the LEI drops this much, companies start firing people. But this time, they didn't. They "hoarded" labor because finding workers was so hard in 2021 and 2022 that they were terrified to let anyone go. Without mass unemployment, the recessionary spiral never really ignited.
How to actually read the data without panicking
If you’re looking at the LEI leading economic indicator today, you have to look at the rate of change. It’s not just about whether the index is "down." It's about how fast it's falling.
The Conference Board uses something called the "3D's" to determine if a signal is real:
- Diffusion: Is the weakness widespread across all ten components?
- Duration: Has it been falling for six months or more?
- Depth: Is the drop significant, or just a rounding error?
When all three hit, you’re usually in trouble. But even then, there's a lag. Sometimes the LEI signals a recession 12 months in advance. Sometimes it’s 24 months. If you sold all your stocks the moment the LEI turned negative in 2022, you missed out on a massive bull market. Timing is everything, and the LEI is a terrible timing tool for day traders.
It’s better viewed as a risk assessment tool. If the LEI is dragging, it means the margin for error in the economy is thin. A single "black swan" event—a war, a banking crisis, a weird virus—could push us over the edge much easier than if the LEI were climbing.
The role of consumer expectations
One of the more subjective parts of the index is the "Average consumer expectations for business conditions." This is basically a "how do you feel?" survey. It’s fickle. If gas prices go up, people feel bad. If a celebrity says something weird on the news, people feel bad.
But feelings lead to spending. If people expect a recession, they stop buying that $60,000 truck. They skip the kitchen remodel. That's why this "soft data" is included alongside "hard data" like building permits. It’s the psychology of the market.
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The LEI vs. the Lagging Indicators
Don't confuse the LEI with the stuff you see on the nightly news. The Unemployment Rate is a lagging indicator. By the time the unemployment rate spikes, the recession is already here. You’re looking at the wreckage in the rearview mirror.
The LEI leading economic indicator is trying to look through the windshield.
Similarly, GDP is a "coincident" indicator. It tells you what happened last quarter. It’s useful for historians, but if you’re trying to manage a business or a retirement fund, you need to know what’s happening next quarter. That is the entire value proposition of the LEI. It filters out the noise of what is happening to show you what will likely happen.
Is the LEI still relevant in 2026?
Yes. But you have to use it with a grain of salt.
Critics like Ed Yardeni have argued that the LEI is too tilted toward the "old" economy. They aren't entirely wrong. However, the Conference Board actually updated the components recently to try and fix some of these biases. They dropped the "inverted yield curve" impact slightly and adjusted how they look at manufacturing to better reflect the modern world.
Even with its flaws, there isn't a better "all-in-one" snapshot. It’s still one of the most reliable predictors of the business cycle ever created. It’s just that "reliable" doesn't mean "perfect."
What to watch right now
Keep an eye on the "six-month growth rate." If that number starts to recover and move toward zero, the "danger zone" is ending. If it stays deep in the negative—say, below -4%—then the economy is still on shaky ground regardless of how high the stock market goes.
You also want to look at the "Diffusion Index" within the LEI report. If only 2 out of 10 indicators are falling, the economy is probably fine. If 8 out of 10 are falling, it’s a systemic problem.
Actionable steps for the savvy observer
If you’re tracking the LEI leading economic indicator to make real-world decisions, don't just read the headline.
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First, go to the source. The Conference Board releases the data monthly. Look at the PDF. Look at the table that shows all ten components. See which ones are dragging the index down. If it's just "consumer expectations," maybe don't worry too much. If it's "new orders" and "building permits," that’s a structural issue that affects jobs.
Second, compare it to the "Coincident Economic Index" (CEI). If the LEI is falling but the CEI is rising, you have a "divergence." This usually means the economy is slowing down but hasn't hit a wall yet. It gives you lead time to adjust your debt, your savings, or your business hiring plans.
Third, don't be a "perma-bear." The LEI can stay negative for a long time while the economy grows. It happened in the mid-90s. It happened recently. Use the LEI as a "yellow light" on the dashboard, not an automatic "stop" sign.
Finally, watch the "Leading Credit Index" component closely. In our debt-driven world, if credit starts to tighten, everything else follows. If the LEI is dropping because banks are scared to lend, that’s when the real pain starts for small businesses and homebuyers.
Stay skeptical. The LEI is a tool, not a crystal ball. Use it to understand the trends, but don't let a single chart dictate your entire financial life. The economy is far more chaotic than any ten variables can ever capture.
Next Steps for Monitoring:
- Check the official Conference Board website on the third Thursday of every month for the latest LEI release.
- Cross-reference LEI drops with the "Sahm Rule" (related to unemployment) to see if the leading signals are being confirmed by real-world job losses.
- Focus on the "New Orders" component specifically if you are in the manufacturing or logistics industries, as this is often the most "honest" part of the data.