The Piton Investment Team noticed this week that the Conference Board’s Leading Economic Indicators, after being positive the previous two months, returned to the negative in June (down 0.2%). Helpfully, the corresponding press release from the Conference Board (July 20 https://www.conference-board.org/topics/us-leading-indicators/) helps unpack the numbers here. In a previous blog entry (May 1, https://pitonwealth.com/investment-resources/leading-indicators/), the Team focused on the impact of the Consumer Sentiment component has on the overall score, especially given that this is “soft data” (perception by survey respondents, whose perspective on the economy may be fueled by a variety of interests, including political priorities), compared to the hard data (employment numbers, wages, purchasing, etc) that the Piton Investment Team prefers.
The chart from this week’s press release indeed highlights the outsized effect of consumer sentiment (a combination of the University of Michigan’s Consumer Sentiment Index and the Conference Board’s own survey) on the overall score:
Another chart from the press release helpfully pairs the LEI with the Conference Board’s own Coincident Economic Index, and it illustrates how the two roughly tracked for decades but diverged sharply starting in 2023 and onward until the present.
To be fair to the Conference Board, their official position is that the LEI is not so far off as critics have claimed. The invoke the “3Ds,” —duration, depth, and diffusion—, for calibrating the signals of the LEI. The chart below shows how the Conference Board presents the LEI calibrated to the 3D’s:
The Piton Investment Team still sees the recession signal (the red lines) in 2025 as out of alignment even with the Conference Board’s own Coincidental data. For this reason, the Team does still monitor the LEI report, but from the perspective that the Consumer Confidence component can distort the overall score, and so the Team prefers to the scrutinize the hard data in other components. For Piton clients, this type of work feeds into the recommendations of the Team for their portfolios. The types of investments that will be stronger in a recessionary environment differ from those in a robust or bullish economy. Hence the screening mechanisms and the Team’s recommendations will operate in that context. When that environment does seem to be shifting, of course the Team will make adjustments in their analysis, in order to position holdings in client portfolios in the best interests of clients.