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09/26/2023 | Press release | Distributed by Public on 09/26/2023 07:19

LEI for China Fell in August

About the Leading Economic Index and the Coincident Economic Index:

The Leading Economic Index provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term. The Coincident Economic Index provides an indication of the current state of the economy. Additional details are below.

The Conference Board Leading Economic Index®(LEI) for China declined by 0.3 percent in August 2023 to 153.7 (2016=100), following a decline of 0.5 percent in July. The LEI contracted by 1.5 percent from February to August of 2023, a much smaller rate of decline than 3.7 percent over the previous six months.

The Conference Board Coincident Economic Index® (CEI) for China inched up by 0.1 percent in August 2023 to 144.6 (2016=100), after a 2.3 percent increase in July. The CEI grew by 1.9 percent in the six-month period between February and August of 2023, an increase from the 1.2 percent growth between August 2022 and February of 2023.

"The China LEI declined again in August, suggesting further obstacles to growth," said Ian Hu, Economic Research Associate, at The Conference Board. "Although the profitability index improved slightly, the change was not enough to offset deteriorating consumer expectations, likely reflecting weakening labor market conditions and the continued housing downturn. Over the past year, the 6-month changes for consumer expectations and exports have been consistently negative. As such, we predict that headwinds to growth will persist; the Conference Board projects year over year GDP growth of 4.8 percent in 2023, which is downwardly revised from a previously projected 5.1 percent growth rate."

The China LEI declined in four of the last six months

Most contributions to the China LEI remained negative or flat in August

Negative China LEI readings suggest further headwinds to growth ahead

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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About The Conference Board

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