Changes to The Conference Board Leading Economic Index® for the U.S. Aim for More Accurate Business Cycle Predictor

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Jan 05, 2012, 10:00 ET

NEW YORK, Jan. 5, 2012 /PRNewswire/ -- The Conference Board, the global research and business membership organization, today announced several changes to The Conference Board Leading Economic Index® (LEI) for the United States. The changes, which will take effect beginning with the January 26, 2012 release, represent comprehensive benchmark revisions to the U.S. LEI. They are the first major overhaul of the components of the LEI since 1996, when The Conference Board assumed responsibility for the business cycle indicators program from the Bureau of Economic Analysis at the U.S. Department of Commerce.

The revisions are the result of an extensive reevaluation of the existing LEI components and were made following discussions with The Conference Board Business Cycle Indicators Advisory Panel and other experts in the field. The changes respond to structural changes in the U.S. economy:

The former Real Money Supply (M2) component will be removed, retroactive to 1990, and replaced by a new Leading Credit Index™ (LCI) component.
The Institute of Supply Management (ISM) Supplier Delivery Index will be replaced as a component by the ISM New Orders Index.
The Reuters/University of Michigan Consumer Expectations Index will be replaced by an equally weighted average of consumer expectations measures that come from surveys conducted by The Conference Board and Reuters/University of Michigan.
The "New Orders for (nondefense) Capital Goods" component will be replaced by "New Orders for (nondefense) Capital Goods, excluding Aircraft."

In addition to these changes, several technical adjustments will be made to ensure a more rigorous reading of data and trends. All of these extensive changes are being introduced together to minimize disruption to users of the LEI data.

"These adjustments have been designed to make the U.S. Leading Economic Index an even stronger predictor of peaks and troughs in the business cycle, while recognizing changes in the functioning and drivers of the economy in the short and medium term," said Bart van Ark, Chief Economist at The Conference Board. "Our research has demonstrated that our new Leading Credit Index™ better reflects changes in business conditions than the old real money supply component, due to basic structural changes in the U.S. economy since the 1980s."

The LCI was developed by The Conference Board as a proprietary composite measure of a number of financial-market indicators that have proven their worth over the past two decades as forward-looking predictors of economic activity. Among the data aggregated in the LCI are measures of yield curves, as well as newer indicators on interest rate swaps, and the Federal Reserve's senior loan officer survey.

"Though we've built on a large body of established literature, the Leading Credit Index™ differs from many other indexes on financial conditions currently available," noted Ataman Ozyildirim, Director of Economic Research at The Conference Board. "Its components form a carefully selected set of indicators which zero in on business-cycle turning points, rather than general financial stress or instability. Our revised figures have shown that the Leading Credit Index, in conjunction with other changes, make the new LEI a more accurate predictor of the U.S. business cycle since 1990, especially before and during the 2008-2009 recession, and during the new recovery/expansion period we are currently in."

After this extensive readjustment, future U.S. LEI levels, and their month-over-month movements, will no longer be directly comparable to the figures released before the change. The new revised historical series, dating back to 1990, will be available at the time of the U.S. LEI report, which will be issued on January 26. More information is available at http://www.conference-board.org/data/bci.cfm or [email protected].

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