10 Leading Economic Indicators for Business Planning

The Conference Board Leading Economic Index

The Conference Board combines ten leading indicators into a single composite index. When the LEI declines for three or more consecutive months and the cumulative decline exceeds 2% from its recent peak, a recession has historically followed within 6-12 months. The index is published monthly and available through FRED. Its power lies in combining diverse economic signals — financial, labor, manufacturing, and consumer — into a single trend.

The 10 Components

1. Average weekly hours in manufacturing. When factories cut hours before cutting jobs, it signals weakening demand. This is the earliest labor market signal because employers reduce hours before laying off workers. Track this alongside the manufacturing PMI for a complete factory-floor picture.

2. Average weekly initial claims for unemployment insurance. Rising jobless claims indicate that layoffs are accelerating. The four-week moving average smooths out weekly volatility and provides a clearer trend signal. This component is released weekly, making it the most frequently updated LEI component.

3. Manufacturers' new orders for consumer goods and materials. New orders represent committed future production. Declining orders mean factories will produce less in coming months, with ripple effects through supply chains. Track this with durable goods orders data.

4. ISM Index of New Orders. The new orders component of the ISM Manufacturing PMI is a diffusion index where readings below 50 indicate contraction. It captures the breadth of ordering activity across the manufacturing sector and often leads the headline PMI by one to two months.

5. Manufacturers' new orders for nondefense capital goods excluding aircraft. This component — known as core capital goods orders — is the purest measure of business investment intentions. When companies order equipment and machinery, they expect to use it productively. Declining core capital goods orders signal that businesses are pulling back on expansion plans.

6. Building permits for new private housing. Housing permits lead actual construction by one to two months and housing sales by several months more. Because housing is extremely interest-rate sensitive, permits are among the first economic activities to decline when the Fed tightens monetary policy.

7. S&P 500 stock prices. Stock markets are forward-looking by nature. When equity prices decline persistently, it reflects deteriorating expectations for corporate earnings and economic growth. However, this component generates more false signals than others — stock markets have predicted nine of the last five recessions, as the saying goes.

8. Leading Credit Index. This component measures the availability and cost of credit. Tightening lending conditions restrict the flow of capital to businesses and consumers, slowing economic activity. Credit conditions often tighten before the economy weakens, making this a valuable early warning component.

9. Interest rate spread (10-year Treasury minus federal funds rate). The yield curve spread has the strongest individual recession prediction track record of any LEI component. An inverted spread signals that financial markets expect the Fed to cut rates in response to future economic weakness.

10. Average consumer expectations for business conditions. Drawing from the Michigan Consumer Sentiment Survey, this component captures the forward-looking element of consumer confidence. When consumers expect business conditions to deteriorate, they reduce spending preemptively.

Building Your Own Leading Indicator Dashboard

While the composite LEI is valuable, building a custom leading indicator dashboard for your specific industry provides even more actionable intelligence. Combine the ten LEI components with industry-specific forward-looking metrics: backlog data, quote-to-close ratios, customer inventory levels, and supplier lead times. Track these on a monthly cadence using the economic calendar for release dates.

The key principle is breadth of weakness. One or two declining indicators may reflect sector-specific issues. When five or more indicators decline simultaneously for three or more months, the signal is much stronger and warrants significant strategic adjustment. Use the ExecBolt indicators dashboard to monitor multiple data series simultaneously and identify these patterns of broad-based deterioration.