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LEIs Continue to be Worthless

Posted By Barry Ritholtz On January 24, 2006 @ 6:45 am In Data Analysis | Comments Disabled

More absurdity [1] from the people who ruined an otherwise adequate indicator:

Wsj__20060123_1 [2]
"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 [3].   

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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...

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Sources:
Economic Gauges Indicate Strength In Months Ahead [1]
JOI PRECIPHS
THE WALL STREET JOURNAL, January 24, 2006
http://online.wsj.com/article/SB113802896110753642.html

Business Cycle Indicators: LEI [4]
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 [5]
RELATED COMPOSITE INDEXES FOR DECEMBER 2005 [5] (PDF)
http://www.conference-board.org/pdf_free/economics/bci/lei0106.pdf


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URL to article: http://www.ritholtz.com/blog/2006/01/leis-continue-to-be-worthless/

URLs in this post:

[1] absurdity: http://online.wsj.com/article/SB113802896110753642.html

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/wsj__20060123_1.gif

[3] important economic indicator: http://bigpicture.typepad.com/comments/2005/09/economists_name.html

[4] Business Cycle Indicators: LEI: http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

[5] U.S. LEADING ECONOMIC INDICATORS AND : http://www.conference-board.org/pdf_free/economics/bci/lei0106.pdf

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