Industrial Production Confirming Changes To LEI

For the last several months I have been scratching my head about the Leading Economic Indicator Index (LEI), as published by the Conference Board, due to the divergence between it and other leading indicators that we watch.  The LEI has risen extremely sharply while real indications of the economy such as changes to employment, industrial production, incomes and personal consumption expenditures have not.  While the immediate conclusion is the manipulation of the yield curve and money supply are responsible for the disparity - the reality is that those two indicators alone do not account for the magnitude of the deviation.  

[Geek Note:  The Composite Recession Indicator is a weighted average of the changes to employment, industrial production, incomes and personal consumption expenditures.]

Furthermore, the sharp rise in the index from recessionary lows without the confirming rise of economic growth to new highs, as witnessed post every previous recessionary trough, has been a perplexing mystery given the fact the ECRI Weekly Leading Index and others have been showing leading indications of economic weakness.  So, what does industrial production have to do with this?

The release of industrial production today showed a 0.4% advance over the last month.  On the surface this sounds positive but in reality goes further to confirm the LEI conundrum.  While the LEI has soared off to the moon; industrial production has not only failed to attain a new high in this post recessionary recovery but has peaked and began to decline. 

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