The index of leading economic indicators continues to signal contraction ahead for the US economy, but at a less severe degree in January than prior months. The LEI fell 0.3 percent as expected following a revised 0.8 percent decline in December, though the Conference Board notes that when looking over the last six months, the index has fallen more steeply than the prior six months (3.6 versus 2.4 percent).

The board further notes that the yield-spread component has turned negative the past two reports"which is often a signal of recession to come." Manufacturing orders are deteriorating, consumer expectations are deteriorating, and credit conditions are tightening; in sharp contrast, however, employment components"remain robust so far". The board continues to expect that high inflation, rising interest rates, and contracting consumer spending will"tip" the US economy into recession this year.

The index of leading economic indicators, which has been in steep decline, is expected to fall a less steep but still further 0.3 percent in January.

The index of leading economic indicators is a composite of 10 forward-looking components including building permits, new factory orders, and unemployment claims. The report attempts to predict general economic conditions six months out.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. More specifically, it was designed to lead the index of coincident indicators, also now published by The Conference Board. Investors like to see composite indexes because they tell an easy story, although they are not always as useful as they promise. The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn't necessarily reveal new information about the economy. Bond investors tend to be less interested in this index than equity investors. Also, the non-financial media tends to give this index more press than it deserves.