The Conference Board’s Leading Economic Index (LEI), which we report on monthly here, is a composite of ten indicators that stretches back to 1959. Over that multi-decade time frame, the US population has increased by about 84 percent. What would the LEI tell us about our economy if we adjusted the data for population growth?
Here is a chart of the LEI series with documented recessions as identified by the NBER. We’ve also overlaid the same series with a population-adjusted version based on the Census Bureau’s mid-month estimates and an extrapolation for the latest month. The LEI is 1.4% off its high. The population-adjusted LEI is 9.1% off its high. The peaks for both series occurred a decade ago in March of 2006. The unadjusted version is close to setting a new high, although it has trended sideways of late. The population-adjusted version is significantly less encouraging.
For a sharper comparison of the relationship between the LEI and recessions, the next chart illustrates the percentage off the previous peak for the index across its entire history.
The population-adjusted version of the second overlay shows a sideways trend over the past year at a level well below its pre-recession peak. The implication is that the US economy is somewhere in the vicinity of two-thirds of the growth needed to recover fully from the last recession. By this metric, despite the distance in months since the end of the Great Recession in mid-2009, the economy remains at risk of a double dip recession.
The red line in the charts above offers a context for understanding the current state of politics in a presidential election year: The appeal of Sanders to the younger citizens desperately seeking a path to financial stability and the strength of Trump among a broad base of financially challenged voters who haven’t fared well during the Fed-managed recovery.