Leading Economic Indicators
Economic metrics that tend to change before the broader economy shifts, used to forecast upcoming recessions or expansions.
What is Leading Indicators?
Leading economic indicators are statistical measures that tend to change direction before the broader economy begins to shift, providing advance signals of upcoming expansions or contractions. Because they anticipate turning points, they are closely monitored by policymakers, investors, and businesses as early warning systems. The US Conference Board's Leading Economic Index (LEI) combines ten components: average weekly manufacturing hours, average initial weekly unemployment claims, manufacturers' new orders for consumer goods, the ISM new orders index, manufacturers' new orders for capital goods, building permits for new private housing, stock prices (S&P 500), the Leading Credit Index, the interest rate spread (10-year Treasury minus federal funds rate), and average consumer expectations for business conditions.
Example
The Conference Board's Leading Economic Index (LEI) for the US declined for 24 consecutive months from April 2022 through March 2024—one of the longest streaks in the indicator's history—signaling persistent recession risk. Despite this extended warning signal, the widely forecast recession did not materialize as labor markets remained exceptionally resilient throughout the period, illustrating that leading indicators are probabilistic forecasting tools rather than certainties, and that unprecedented post-pandemic fiscal support can override historical correlations.