Leading index signals possible recession

Ataman Ozyildirim

An index forecasting economic conditions in the United States continues to retreat, signaling a possible recession.

The Conference Board reported its Leading Economic Index (LEI) declined eight-tenths of a percent to 114.9 in October. The index has dropped in each of the last eight months.

Separate measures of current and past conditions increased in October.

“The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rate as well as declining prospects for housing construction and manufacturing,” said Ataman Ozyildirim, senior director of economics at the Conference Board.

Gross domestic product, the broad measure of goods and services produced in the country, is projected to increase
1.8 percent in 2022 over 2021. But a recession is expected to start around the end of the year and continue through mid-2023, Ozyildirim said.

The LEI has decreased 3.2 percent over the past six months. That compares to a 0.5 percent gain over the previous six months. Weaknesses among leading indicators have become more widespread.

For October, six of 10 components of the index declined, including building permits, consumer expectations, leading credit and new orders indexes and stock prices. An increase in initial claims for unemployment insurance also pulled down the index. The interest rate spread and new orders for consumer and capital goods increased. Average weekly manufacturing hours held steady.

The Coincident Economic Index (CEI), a measure of current conditions, increased two-tenths of a point to 109.3. The CEI rose 1.1 percent over the previous six months.

For October, three of four components of the CEI advanced: nonfarm payrolls, personal income and sales. Industrial production declined.

The Lagging Economic Index (LAG), a measure of past performance, edged up a tenth of a point to 116.3. The LAG increased 1.5 percent over the past three months.

For October, four of seven components of the LAG advanced: average prime rate charged by banks, consumer credit, commercial and industrial financing and inventories. The change in labor costs and services pulled down the index, as did an increase in the average duration of unemployment.