Chart Of The Day: LEI – Leading-To-Lagging Ratio


Via Lance Roberts of Street Talk Live,

While the general consensus from the media, and the majority of analysts, is that the U.S. economy will avoid a recession – there have been numerous indicators that have continued to point to deterioration in the economic fabric.  Most recently industrial production in the U.S. dropped sharply, along with capacity utilization rates, due to the growing recession in Europe, and slowdown in China, which has impacted exports from domestic manufacturers.

This past week the monthly release of the Leading Economic Indicators showed that the leading-to-lagging indicator ratio dropped to 89.5 which matches the lowest level in more than 2 1/2 years.  Historically when the leading-to-lagging ratio has fallen below 91 the economy was either in, or about to be in, a recession.

lei-coincident-to-lagging-112312

 

While it is not popular within the media, or blogosphere, to point out economic concerns but rather why markets are going to engage in a continued bull market – the simple reality is that by the time the NBER announces an official recession it will be far to late for investors to minimize the damage.  The leading-to-lagging ratio continues to point to an economy that has very little, if any, actual momentum which leaves it very susceptible to exogenous shocks. 

So, while there are many things to be thankful for within the economy this holiday season – it will pay for investors to continue to consider both sides of the economic argument as we move into 2013.  Ignoring the trends of the macro-data could prove costly.

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