Leading U.S. Economic Indicator Falls for 10th Straight Month, Suggests Looming Recession

An indicator that assesses the health and well-being of the American economy declined for the tenth consecutive December. This exceeded forecasts, suggesting a potential improvement. recession In the months to come.

The Conference Board Leading Economic Index for the United States (LEI) declined by 1 percentage to 110.5 in December after a 1.1 per cent decrease in November. press release January 23, 2009. The LEI recorded a drop of 4.2 percentage in the six months between June and December. “much steeper rate of decline” Compare that to the 1.9% decrease over the preceding six months.

“The U.S. LEI fell sharply again in December—continuing to signal recession for the U.S. economy in the near term,” Ataman Ozyildirim is the senior director for economics at The Conference Board.

“There was widespread weakness among leading indicators in December, indicating deteriorating conditions for labor markets, manufacturing, housing construction, and financial markets in the months ahead,” He stated.

Ozyildirim anticipates that the next quarters will see the overall economy turn negative, before picking up again in this last quarter.

According to Reuters poll, the 1 percent drop in LEI was more than expected. This is in contrast with forecasts of Reuters economists who had predicted a 0.7 percent decline.

Meanwhile, The Conference Board’s Coincident Economic Index, which measures current activity, rose by 0.1 percent in December. Only the Industrial Production Index was negative among the many components of the CEI. December saw industrial production fall for the third straight month.

The CEI “has not weakened in the same fashion as the LEI because labor market related indicators (employment and personal income) remain robust,” Ozyildirim was stated.

Recession Looms

According to The Conference Board, the LEI typically peaks one year before a recession is likely. It peaked in February 2022.

“New lows for the U.S. Leading Indicator index. This indicator has a 100 percent hit rate on anticipating recessions with a seven to eight months lag. It’s now pointing to a recession starting in the second quarter, and on par with the 2001 recession. Markets, in the meantime: Soft landing and La-La Land,” Alfonso Peccatiello was the founder of The Macro Compass and its CEO. stated Tweeted Jan. 23

Among components in the LEI, only three of them—S&P 500 Index of stock prices, interest rate spread, 10-year Treasury bonds less federal funds, and manufacturer’s new orders, consumer goods and materials—registered positive growth.

January survey According to the National Association of Business Economics, more than 50% of respondents saw the possibility of the United States going into recession within the next 12 months at 50 percent or greater.

About 20% of respondents expect that employment at their company will fall over the next few months. Economic outlook was impacted by the most serious downside risks: higher interest rates and rising costs.

Stock Market Impact

The following is an interview Liz Young, SoFi’s head of investment strategy, stated that the recession was likely not being priced into stocks in a conversation with CNBC on January 23. She noted that in a recession, the stock market’s average decline is 44%.

To suggest that investors are seriously considering a recession, the market must fall by at least 30% from its most recent highs.

The current market level will mean that the S&P 500 must fall 16 percent. Young suggested that a significant decline in corporate profits could indicate a deeper recession.

Bloomberg’s December survey of economists found that there were seven out of 10 chances of the United States going into recession this year, up from 65% in November. In the second half of 2023, consumer spending is expected not to grow. Consumer spending accounts for approximately two-thirds the U.S. gross domestic product.