The Leading Economic Index (LEI) is a comprehensive indicator used to forecast economic developments. The index combines several key statistics that are believed to predict future economic activity. For example, a rise or fall in the index can indicate whether economic growth is likely to accelerate or slow in the coming months.
The main components of the index are:
The index includes indicators that measure various aspects of economic activity, such as:
Average hours worked per week in manufacturing.
New jobless claims.
Manufacturing orders for new goods.
Building permits.
Changes in stock prices.
Consumer sentiment.
New credit and money supply levels.
These indicators vary by country, but the purpose of the index remains the same: to assess the future state of the economy.
Why is the LEI important?
Predicting recessions and economic expansions: The LEI is considered one of the leading indicators for determining economic cycles.
Investment Strategies: For investors, it is a tool to understand the overall state of the market and predict profitable sectors.
Support for central bank decisions: The LEI can influence monetary policy.
Where it is most often found:
In economic reports from organizations such as the Conference Board in the United States.
In analytical materials from central banks and the Ministry of Economy.
In forecasts for investors and stock markets.
Real case example:
In 2007, the LEI index began to decline several months before the onset of the global financial crisis. It signaled a slowdown in economic activity through indicators such as falling building permits and falling stock prices. These warning signs allowed many investors and companies to prepare for the recession by adjusting their strategies.
The Leading Economic Indicators Index is a tool that allows investors and economists to anticipate changes in the economy, making it an important element for decision-making and risk management.
