The Conference Board’s Leading Economic Index (LEI) declined for the fourth straight month in June as its -0.8% decline was far worse than economists had expected. Contributions from nine of the LEI’s ten components were either unchanged or negative in the latest report – with consumer pessimism, softening labor market conditions, and weaker manufacturing all weighing heavily on the measure.
After this decline, the LEI is now on the verge of giving two different recessionary signals. First, the LEI has come dangerously close to crossing below its 18-month moving average (top graph below), which has a reliable historical track record as a warning flag for recession. Likewise, the LEI’s rate-of-change is now very close to falling into negative territory (bottom graph), which would be another indication of a potential downturn in the U.S. economy. Both signals are so close to being reached, in fact, that another decline of this magnitude in the next report would trigger both LEI warning flags. Finally, with today’s concerning message from the LEI, the Conference Board is now unequivocally warning of an upcoming recession: “The forward-looking LEI points to a US economic downturn ahead… A US recession around the end of this year and early next is now likely.”
Eli Petropoulos, CFA – Sr. Market Analyst
