More absurdity from the people who ruined an otherwise adequate indicator:

Wsj__20060123_1
"Six of the 10 indicators that make up the index registered increases last month: consumer expectations, real money supply, average weekly unemployment claims, stock prices, the interest-rate spread and manufacturers’ new orders for consumer goods. Orders for nondefense capital goods, building permits, vendor performance and average weekly manufacturing hours were negative contributors to the index.

The Conference Board index that measures current economic activity — which reflects data on nonagricultural payroll, personal income and industrial production — increased 0.2% after rising 0.4% in November. The lagging-indicators measure rose 0.1% after the previous month’s advance of 0.5%.

Let me hasten to point out the absurdity of this data point: The yield curve inverted in December, and this is somehow economically stimulative? That’s like saying cigarette smoking is cardiovascular ewercise, and deep fried pork rinds are health foods.

No wonder a survey of economists found the LEI to be the least important economic indicator.   

>

UPDATE January 24, 2006 10:45am

On the train in this morning, I was turning over the LEI numbers in my head — they simply didn’t add up.

So I laboriously entered them into an Excel Spread sheet, and The Conference Board reported that six of the ten indicators that make up the leading index increased in December.

I’m having someone double check my work — but at first glance, it looks like LEI’s actually shrank;

Of course, the absurdity of the Interest rate spread is front and center. It flattened from 0.54 down to 0.31 (ignore the inversion, these are monthly figures). That represents a -42.59% decrease in interest rate spread — and somehow, we are supposed to believe this is a positive for the economy? Puh-leeze...

>

>

Sources:
Economic Gauges Indicate Strength In Months Ahead
JOI PRECIPHS
THE WALL STREET JOURNAL, January 24, 2006
http://online.wsj.com/article/SB113802896110753642.html

Business Cycle Indicators: LEI
Complete press release
Released: Monday, January 23, 2006
http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

U.S. LEADING ECONOMIC INDICATORS AND
RELATED COMPOSITE INDEXES FOR DECEMBER 2005 (PDF)
http://www.conference-board.org/pdf_free/economics/bci/lei0106.pdf

Category: Data Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “LEIs Continue to be Worthless”

  1. Ironman says:

    “Let me hasten to point out the absurdity of this data point: The yield curve inverted in December, and this is somehow economically stimulative? That’s like saying cigarette smoking is cardiovascular ewercise, and deep fried pork rinds are health foods.”

    It just goes to show that if people think they can sell a product by saying anything, they’ll say anything, whether its cigarette smoking, pork rinds and especially economic data….

  2. Ajay Jindal says:

    What do you think of ECRI’s LEI? I understand they have been far more accurate, tho for some reason TCB’s LEI seems to get more press.
    I heard a presentation by ECRI people about 8 months ago, and they were clear — no slowdown in sight in US eco despite high oil prices, rising short term rates and so on. So far thats correct. I dont have access to their stuff on a regular basis sittinng here in India, but they may just be doing a better job than TCB.

  3. wilma says:

    What??!!! Deep fried pork rinds are not health foods!!?

    I’m sure smoking must be better than exercise, it makes me cough more.

  4. cm says:

    That’s the problem with (public) indicators, not only in macroeconomics. When they are only used to observe something, everything is fine. When they feed back into controlling the subject matter that is being measured, they lose their information content. The problem is that the feedback is not an unfortunate side effect, but the very reason why the indicators are taken.