LEI’s projection power pending

Amy Scott Nov 21, 2007
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LEI’s projection power pending

Amy Scott Nov 21, 2007
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Scott Jagow: We get some closely watched economic figures today: The index of leading economic indicators, or LEI. Will there be signs of recession in there? As Amy Scott reports, it might not matter.


Amy Scott: Economists tell a joke about the LEI: They say it predicted 10 of the last five recessions.

Michael Englund with Action Economics says the thing is, it’s kinda true:

Michael Englund: We tend to predict about twice as many downturns with the leading economic indicators index as actually have occured real-time.

Englend says that’s because no two recessions are the same. The signals the economy sent out last recession won’t necessarily show up the next time around.

Take interest rates. Usually, long-term rates are higher than short-term rates. When the situation reverses, it often means a severe downturn is around the corner.

Wachovia analyst Tim Quinlan says when that happened last year, the LEI was screaming for a recession — but it never came.

Tim Quinlan: They changed their methodology to account for that. And then it’s been a little bit more reliable.

And so far, you might be pleased to hear the index is pointing to a slow-down, not an all-out recession.

In New York, I’m Amy Scott for Marketplace.

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