The recovery continues to expand

By Matthew J Bartolini, CFA, Head of SPDR Americas Research

Fueled by a trifecta of accommodative monetary policies, large fiscal stimulus measures, and the presence of a vaccine, the global economy continues to stage a once-in-a-lifetime recovery after a once-in-a-lifetime crisis. And the vaccine represents the most important catalyst to the position our society finds itself in today — moving from a recovery to a possible expansionary re-opening.

In this charting the market, I will utilize our preferred metric for US business cycle analysis to understand if we have entered an expansion while discussing how to possibly position portfolios in the environment from a sector perspective.

Dissecting the Business Cycle 

First published by the US Department of Commerce as part of the Business Cycle Indicators program in the late 1960s, the Conference Board’s LEI Index (LEI) aggregates 10 economic indicators — ranging from employment, business orders and financial conditions to consumer expectations — to summarize common turning-point patterns in economic data. The indicators included in the composite index have survived a wide variety of statistical and economic tests such as consistency, economic significance, statistical adequacy, smoothness and promptness.

Most of the research on business cycles defines only recession and expansion by identifying peak and trough. However, we believe there are nuances in different stages between a peak and a trough. Therefore, we divided the business cycle based on the direction and magnitude of changes of the Conference Board LEI Index.

  • Recession: The LEI declines to a trough at an accelerating pace
  • Recovery: The LEI rebounds from a trough but below long-term trends1
  • Expansion: The LEI year-over-year (YoY) changes are positive and above long-term trends
  • Slowdown: The LEI YoY changes pass the peak and begin moderating

The chart below shows the delineation between these parts of the cycle and the changes in the LEI. As shown, with economic data improving in the US, the economy may have indeed entered an expansion based on this one metric.

Conference Board LEI YoY%

Expansion Expectations

The larger question, however, is will it be sustained? To be fair, the acceleration is a result of the strengthening economic data. But it is also from the low-base effects from the starting point from one year ago. As shown above, the LEI YoY change increased at the fastest rate in history (a 9.45 percentage point change). So, in terms of sustainability it may not continue at this hyper-pace, particularly as there was a weak April jobs report.2

Yet, it does not mean this positive relay handoff from recovery to expansion will be short-lived or bungled — especially since there is roughly $2.6 trillion of excess savings3 sitting on the sidelines. As shown below, the percent of savings of disposable income still sits well above normal levels. As doors begin to fully re-open, this cash could start to filter down into the real economy, accelerating the burgeoning economic expansion.

There are also some positive signs from alternative data, both in terms of our current progress and the potential path ahead. Businesses, storefronts, restaurants, hotels, and event locations are all starting to increase capacity and re-open their doors to society — evidenced by US mobility improving, with visitors to parks, places of retail and recreation improving the most.

Yet not all mobility trends are back above pre-pandemic levels, as shown below. More vaccinations should lead to a faster and more sustainable re-opening, however. President Biden has called for at least 70% of American adults to have one dose of the vaccine by July 4th,4 potentially accelerating these mobility trends and the economy — strengthening the case for this current potential expansion.

To read this article in its entirety, please click here. This post originally appeared on the State Street Global Advisors blog on May 11.

Photo Credit: XXX via Flickr Creative Commons



1When identifying recessionary periods, we made small adjustments to the beginning month to match with the economic peak identified by the National Bureau of Economic Research. The adjustments make the beginning month of recessions more aligned with the market downturn.

2“U.S. Job Growth Disappoints in Challenge to Economic Recovery,” Bloomberg, May 7, 2021.

3″Americans are sitting on $2.6 trillion in excess savings from the pandemic that can help power a recovery, Moody’s says,” Business Insider, April 19, 2021.

4″Biden Sets New Goal: At Least 70% Of Adults Given 1 Vaccine Dose By July 4,” NPR, May 4, 2021.


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