Global Leading Indicators

The Conference Board Leading Economic Index^®(LEI) for Australia decreased by 0.3 percent in December 2022 to 118.4 (2016=100), following a 0.1 percent increase in November. The LEI decreased by 1.5 percent from June to December of 2022, a reversal from the 1.3 percent increase during the six-month period between December 2021 and June 2022.

The Conference Board Coincident Economic Index^® (CEI) for Australia decreased by 0.2 percent in December 2022 to 113.5 (2016=100), following an increase of 0.3 percent in November. The CEI improved by 0.7 percent in the six-month period from June to December 2022, slowing from the previous six-month period, in which the CEI increased by 1.2 percent.

“The LEI for Australia decreased in December, suggesting there are headwinds to economic growth in Australia such as rising interest rates and slowing global growth in the short term,” said Andrew Dearborn, Economic Research Assistant at The Conference Board. “Large declines in rural good exports and share prices led to December’s deterioration in the index. The Conference Board still forecasts year-over-year real GDP growth was 4.0 percent in 2022 and will slow to 2.4 percent in 2023.”

The LEI for Australia shows a moderate decline in December

Non-financial components led the decline in the LEI over the past six months

The decline in the LEI has triggered a warning signal, pointing to headwinds to economic growth in the near future

Note: The chart illustrates the so-called 3D’s rule which is a reliable rule of thumb to interpret the duration, depth, and diffusion – the 3D’s – of a downward movement in the LEI. Duration refers to how long-lasting a decline in the index is, and depth denotes how large the decline is. Duration and depth are measured by the rate of change of the index over the last six months. Diffusion is a measure of how widespread the decline is (i.e., the diffusion index of the LEI ranges from 0 to 100 and numbers below 50 indicate most of the components are weakening). The 3D’s rule provides signals of impending recessions 1) when the diffusion index falls below the threshold of 50 (denoted by the black dotted line in the chart), and simultaneously 2) when the decline in the index over the most recent six months falls below the threshold of -3.0 percent. The red dotted line is drawn at the threshold value (measured by the median, -3.0 percent) on the months when both criteria are met simultaneously. Thus, the red dots signal a recession.

About The Conference Board Leading Economic Index^® (LEI) Australia: The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by approximately 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle.

The seven components of The Conference Board Leading Economic Index^® for Australia include: Yield Spread, Share Prices, M3 Money Supply, Building Approvals, Rural Goods Exports, Sales to Inventories Ratio, and Gross Operating Surplus.

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