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By New_Deal_democrat November 7, 2013 8:52 am
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A note about the Idex of Leading Economic Indicators

Yesterday the Conference Board released the Index of Leading Economic Indicators for September, which had been delayed due to the government shutdown affecting data releases last month. The index rose 0.7 for the second month in a row, and had its highest YOY reading in two years.

The Index was once reported in a survey of Wall Street analysts as the single most useless data point.  My take is entirely the opposite.  Since most analysts are herd followers, who simply project recent trends into the future, they habitually miss turning points.  How could they justify their $bazillion salaries and bonuses if a mindless index had a better record of signalling turning points than they do?

The index is designed to show what they economy will do over the next six to nine months.  That it is positive and accelerating bodes well for continued positive readings in measures like production, sales, income and jobs over that time.

Notice that I didn't say that the index is any particular help to investors.  That's because measures of both the bond and stock markets themselves are components of the index. Several bond market measures - inverted yields on corporate bonds, and spreads in the yield curve - are generally considered to be long leading indicators, which turn over a year before the overall economy.  The stock market turns on a much more variable basis, but a median time of about 6 months or so before the broader economy.

If anything, only the long leading indicators of bond yields, housing permits, real money supply, and corporate profits may be helpful to investors trying to gauge where stock prices may be headed.

But the LEI remains the easiest K.I.S.S. Forecast for near term economic performance.

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