Global Leading Indicators

The Conference Board Leading Economic Index^®(LEI) for China decreased by 0.6 percent in January to 155.5 (2016=100), after declining by the same amount in December of 2022. In addition, the LEI contracted by 4.4 percent from July of 2022 to January of 2022, faster than its 3.6 percent contraction over the previous six months.

The Conference Board Coincident Economic Index^® (CEI) for China increased by 1.2 percent in January to 138.8 (2016=100), after a 1.0 percent increase in December. The CEI contracted slightly by 0.1 percent in the six-month period between July 2022 and January 2023, an improvement compared to the 2.9 percent decrease between January and July of 2022.

“The LEI for China fell for an eleventh consecutive month, suggesting the economy is likely to slow in the near term” said Andrew Dearborn, Economic Research Assistant at The Conference Board. “Only new medium- and long-term loans contributed positively in January and machinery imports remained essentially unchanged while the remaining components declined. Weakening consumer expectations, new export orders for manufacturing, and profitability, as well as internal logistics difficulties create headwinds for economic growth prospects in China. Real GDP grew by 3.0 percent in 2022, as reported by the National Bureau of Statistics in China. Despite the headwinds, and in light of China’s exit from zero-COVID policies and the associated rebound in domestic demand, The Conference Board forecasts GDP growth to be 5.1 percent in 2023.”

The China LEI declined again in January

Over the past 6 months, non-financial components, led by Consumer Expectations and the Logistics Prosperity Index, have driven the decline in the LEI

Prolonged weakness in the LEI has kept recession risks elevated since June of 2022

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 -2.5 percent. The red dotted line is drawn at the threshold value (measured by the median, -2.5 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) for China: 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 5 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 eight components of The Conference Board Leading Economic Index^® for China include Consumer Expectation Index, PMI: Mfg: New Export Order, 5000 Industrial Enterprises Survey, Logistics Prosperity Index, Loan: Medium & Long Term, Floor Space Started, City Labor Market: Demand, and Imports: Machinery and Transport Equipment.

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