Global Leading Indicators

The Conference Board Leading Economic Index^®(LEI) for China decreased by 0.6 percent in February 2023 to 155.4 (2016=100), after remaining unchanged in January. In addition, the LEI contracted by 4.1 percent from August of 2022 to February of 2023, slightly up from the decline of 4.6 percent over the previous six months.

The Conference Board Coincident Economic Index^® (CEI) for China decreased by 0.4 percent in February 2023 to 141.9 (2016=100), after a substantial 3.6 percent increase in January. The CEI grew by 1.2 percent in the six-month period between August 2022 and February 2023, an improvement from the 0.8 percent decrease between February and August of 2022.

“The LEI for China fell in February, pointing to potential weaknesses in the economic outlook in 2023,” said Andrew Dearborn, Economic Research Assistant at The Conference Board. “Persistently weak consumer expectations, internal logistics difficulties, and recession fears in major economies may weigh on economic growth prospects in China as it emerges from its zero-Covid lockdown. Nonetheless, medium- and long-term loans made by financial institutions have offset some of the weaknesses in the nonfinancial components until this month. Meanwhile, coincident indicators measuring current economic conditions have remained volatile, consistent with elevated risks of a downturn in economic growth since mid-2022. Despite the headwinds, and considering an expected rebound in domestic demand, The Conference Board forecasts GDP growth to be 5.1 percent in 2023, but the growth trajectory in the quarters ahead may be uneven.”

The China LEI declined in February, pointing to headwinds in the coming months

Over the past 6 months widespread declines among non-financial components drove 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 -3.1 percent. The red dotted line is drawn at the threshold value (measured by the median, -3.1 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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