Here's a custom dual-line graph synthesizing the US Conference Board Leading Economic Index (LEI) and Coincident Economic Index (CEI) from January 2020 to January 2026 (both indexed to 2016=100). This visualization highlights their relationship and forecasting value.
How LEI and CEI Correlate and Serve as a Forecast Tool. Historical Relationship: The LEI is designed to lead the business cycle by roughly 6–12 months, anticipating turns in economic activity. The CEI reflects current conditions (via employment, income, sales, and production). In normal cycles, the LEI rises/falls before the CEI does, providing an early warning.
2020–2021 (Pandemic Shock): Both dropped sharply in early 2020, but the LEI recovered faster initially and peaked in late 2021, while the CEI continued rising more steadily.
2022–2026 (Post-Peak Divergence): The LEI has trended downward since its ~118 peak (signaling headwinds like weak consumer expectations, softer housing/manufacturing orders). Meanwhile, the CEI has continued a modest upward climb to 115.3, confirming the economy is still expanding in the present.
Current Signal (as of Jan 2026): This classic divergence—declining LEI + rising (but slowing) CEI—suggests positive current conditions but softening momentum ahead. The LEI's six-month contraction has moderated (–1.3% through Jan 2026 vs. steeper prior drops), with improving diffusion (7/10 components positive). The CEI grew +0.3% in Jan and +0.3% over six months, with broad strength.
This pattern aligns with The Conference Board's outlook: ongoing expansion but at a slower pace (~2.0% real GDP growth forecast for 2026, below 2025 levels), with potential further moderation due to policy uncertainties, energy risks, and persistent drags on the LEI. It has not yet triggered a strong recession signal (which historically requires sharper, more prolonged LEI weakness with widespread component declines). The synthesis shows the LEI acting as a forward-looking gauge while the CEI validates real-time activity. When the LEI consistently leads downward turns in the CEI, slowdowns or recessions often follow (with NBER confirming peaks/troughs later).
In addition:
Given a moderating LEI alongside a still-growing CEI, a free market economist would recommend letting price signals do the heavy lifting while removing man‑made frictions that impede reallocation and productivity. The stance is: avoid new demand-side stimulus, commit to predictable rules, and push hard on supply-side liberalization to sustain expansion without reigniting inflation or misallocating capital [2].
Monetary policy: rules, not discretion
- Keep policy credibly focused on price stability and a rules-based approach (e.g., a reaction function that respects incoming inflation and labor-market data), avoiding premature easing that would distort term structure signals; let market rates move freely and continue normalizing the balance sheet predictably to reduce allocative distortions from an outsized central bank footprint [3].
- Do not engage in targeted credit facilities or sector-specific support; allow relative prices to adjust so resources reallocate from low-productivity to higher-productivity uses as momentum cools [1].
Fiscal policy: restrain, simplify, and de-bias toward investment
- Impose a real, enforceable cap on primary spending growth below trend nominal GDP growth to stabilize debt without tax hikes that blunt incentives; avoid deficit-financed “stabilization” that chases a slowing but expanding economy [5].
- Strengthen incentives to produce: make full and immediate expensing for structures/equipment/software permanent; lower marginal tax rates on work, saving, and risk-taking; simplify the code by sunsetting narrow credits and industrial-policy carveouts that skew capital allocation [5].
- Provide policy certainty: adopt multi-year budgeting rules and automatic sunsets of emergency programs to reduce risk premia and planning uncertainty [2].
Regulatory and structural supply-side reforms
- Energy and infrastructure: fast-track permitting (firm timelines, judicial review limits, shot clocks), liberalize siting for pipelines, transmission, LNG export capacity, nuclear (including SMRs), geothermal, and refining; categorically reject price controls and windfall taxes that suppress supply responses and amplify volatility [4].
- Housing and local land use: preempt or condition federal grants on removal of exclusionary zoning and parking mandates; expand by-right approvals to unlock multifamily supply and ease labor mobility across regions [6].
- Labor markets: roll back unnecessary occupational licensing, enable interstate license reciprocity, and remove hours/location mandates that reduce matching efficiency; encourage work through neutral tax/benefit design rather than targeted subsidies [6].
- Trade and supply chains: lower tariffs and quotas, streamline customs and mutual recognition of standards, and avoid export controls except for narrow, clearly defined national security; open markets cushion energy and goods-price shocks and support productivity [2].
Financial sector discipline
- Maintain credible resolution regimes without ad hoc guarantees; price deposit insurance to risk, allow poorly run institutions to exit, and avoid macroprudential credit allocation that props up zombies and drags on productivity [3].
Energy risk management without distortion
- Allow long-dated contracting, hedging, and infrastructure buildout to manage energy risk; do not suppress prices or ration; if policymakers insist on climate measures, prefer simple, technology-neutral, market-based approaches while eliminating subsidies and mandates that pick winners [1].
Contingency if the LEI turns decisively negative and breadth deteriorates
- Let relative prices and wages adjust; accelerate reallocation by temporarily lifting administrative bottlenecks (permitting, licensing, zoning) rather than adding demand stimulus; keep any safety net responses rules-based and time-limited to avoid moral hazard and preserve market signals [4][6].
Guidance for firms and investors in a slowing-but-growing backdrop
- Prioritize productivity-enhancing capex (automation, software, energy efficiency), maintain pricing flexibility, and avoid leverage that assumes persistent top-line growth; hedge energy exposures via market instruments, not via regulatory lobbying [5].
- Watch market signals more than official forecasts: credit spreads, market-based inflation expectations, and breadth in leading indicators; be prepared for wider dispersion across sectors as policy support recedes and relative prices reset [2].
Bottom line: stay the course on monetary discipline, avoid new demand-side interventions, and double down on pro-competition, pro-entry, supply-side liberalization to keep the expansion going at a sustainable, market-driven pace even as momentum cools [1][2][3][4][5][6].
Sources
1
Man, Economy, and State with Power and Market, Scholar's Edition, by Murray Rothbard
2
Human Action, Third Revised Edition by Ludwig Von Mises
3
Capitalism by George Reisman
4
Economic Thought Before Adam Smith by Murray Rothbard
5
Classical Economics by Murray Rothbard
6
The Birth of Plenty by William J. Bernstein
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