Recession Is On Its Way, Says Leading Economic Indicator, But Not Everyone Is Convinced: 'Toss-Up'

The Conference Board’s Leading Economic Index (LEI) — an early indicator of significant turns in the business cycle — sent out a warning on Thursday: a recession is coming.

A Bleak Outlook: In June, the U.S. LEI saw a decline of 0.7% to 106.1, following a drop of 0.6% in May. Over the past six months, the LEI fell 4.2%, marking a more pronounced contraction than the 3.8% seen over the preceding six months.

The continuous decline, now a 15 month-streak, is the longest consecutive decrease since the run-up to the Great Recession of 2007-’08.

The Conference Board is forecasting that the U.S. economy will fall into recession from the third quarter of this year — right around now — through the first quarter of 2024.

Contributing Factors: June’s dip was driven by several factors, including increasingly pessimistic consumer expectations, weaker new orders, a rise in initial claims for unemployment and a decrease in housing construction, the Conference Board said.

The effects of elevated prices, tighter monetary policy, more challenging access to credit, and reduced government spending will further weaken economic growth, according to Justyna Zabinska-La Monica, senior manager of Business Cycle Indicators at The Conference Board.

The Voice Of Economists: Some economists aren’t entirely convinced. Peter Hooper from Deutsche Bank and Doug Duncan from Fannie Mae told Bloomberg on Friday that it’s essentially a toss-up between a recession or a soft landing for the economy, although a downturn seems more probable.

Meanwhile, Bloomberg’s July survey of economists showed a slightly more optimistic picture, with GDP estimates being revised higher for the second and third quarters, despite a 60% chance of a recession within the next 12 months according to the forecasters.

Echoing The LEI: The Coincident Economic Index (CEI) for the U.S., which provides an indication of the current state of the economy, was unchanged in June after rising 0.2% in May. Over the past six months, the CEI saw a 0.6% increase, slowing down from the 1.1% growth recorded over the previous six months.

The Conference Board Lagging Economic Index (LAG) for the U.S. also remained static in June, after gaining 0.1% in May. Over the past six months, the LAG has risen by 0.1%, a dramatic decrease from the 3.0% growth seen in the previous six months.

The Road Ahead: While the still-resilient economy is keeping some economists optimistic, the Conference Board’s prediction paints a gloomy picture.

Though some economic indicators are showing signs of resilience, others, like the LEI, hint at tougher times ahead.

The downturn, it seems, isn’t just a theoretical possibility anymore — it’s a probable reality, according to the LEI.

Read Next: Nasdaq, S&P 500 Futures Grind Higher After Thursday’s Sell-Off; Analyst Hints At Techs Ceding Market Leadership To These Sectors