Leading Economic Indicators Suggest Recession Incoming Despite Current Strength
In spite of some indicators of the state of the economy suggesting an increase in January, the economy still seems to be heading toward a recession.
In line with expectations, Conference Board’s Leading Economic Index (LEI) fell 0.3% in January. Although the rate of decrease eased, this was the index’s sixth consecutive month of declines. The index decreased 0.8% in December.
Ataman Ozyildirim, Senior Director, Economics, at The Conference Board, said, “The US LEI remained on a downward trajectory, but its rate of decline moderated slightly in January…The Conference Board still expects high inflation, rising interest rates, and contracting consumer spending to tip the US economy into recession in 2023.”
Dropping manufacturing new orders, consumer expectations of economic circumstances, and credit constraints all contributed to the fall in January. In the past two months, the yield spread component of the index has also swung negatively, which is sometimes an indicator that a recession is about to begin.
But the labor market is still robust, and stock market values have risen sharply.
After remaining unchanged in December, the Conference Board Coincident Economic Index (CEI), which is made up of information believed to reflect present circumstances but not forecast future economic events, increased by 0.2% in January. Over the past six months, the CEI has increased by 0.7%.
The Conference Board emphasized that the information used to establish when a recession has started includes the CEI’s component indicators, which are payroll employment, personal income less transfer payments, manufacturing trade and sales, and industrial production. Only industrial production remained essentially steady in January, while the other three CEI components all showed improvement. This means that there hasn’t been a recession yet.