The Leading Economic Index (LEI) provides an early indication of significant turning points in the business cycle and the near-term economic outlook. The Coincident Economic Index (CEI) offers insight into the current state of the economy. Recently, the Conference Board's LEI for the US fell by 0.3% in January 2025 to 101.5, after a slight increase in December 2024. Overall, the LEI recorded a 0.9% decline over the past six months, which is a significant improvement from the 1.7% decline in the previous period.
Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board, noted that consumer pessimism and fewer manufacturing hours contributed to January's LEI decline. However, she highlighted that manufacturing orders have nearly stabilized and the yield spread positively impacted the LEI for the first time since November 2022. Despite the monthly decline, only four of the LEI’s ten components were negative in January. Zabinska-La Monica expects US real GDP to expand by 2.3% in 2025, with stronger growth in the year's first half.
Meanwhile, the Conference Board's CEI for the US rose by 0.3% in January 2025 to 114.3, maintaining the same growth rate as December 2024. The CEI's four components—payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production—all improved in January. Industrial production provided the largest positive contribution for the second month in a row, followed by personal income less transfer payments, manufacturing and trade sales, and payroll employment.
Additionally, the Conference Board's Lagging Economic Index (LAG) for the US increased by 0.5% to 119.3 in January 2025, following no change in December 2024. This marks the first positive six-month change of 0.3% growth since the summer of 2024.
The LEI’s fall in January reversed the gains seen in November and December 2024. This decline was driven by consumer expectations and a reduction in weekly manufacturing hours. However, the LEI's annual growth rate is improving, indicating milder downside risks to future growth.
The Conference Board's 3Ds rule signals an impending recession when the six-month diffusion index falls below 50 and the LEI’s six-month decline rate drops below -4.3%. The recession signal lines mark months when both criteria are met, suggesting a recession is likely imminent or already occurring.
The composite economic indexes, such as the LEI and CEI, are designed to signal peaks and troughs in the business cycle. These indexes comprise multiple independent indicators, providing a clearer and more convincing picture of economic turning points than any individual component. The LEI includes ten components, while the CEI includes four.
In the US, economic growth has slowed, and goods prices have risen, according to February's flash PMI surveys. Businesses attribute weaker expansion to uncertainty and disruptions caused by recent government policies and tariffs. Despite this, stiff competition in the services sector has kept price growth in check, benefiting inflation. However, this reduced pricing power, coupled with weaker growth, raises concerns about future profits.
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