The Conference Board's leading economic index (LEI) comprises of 10 indicators, covering a wide range of economic activity. These include job growth, housing construction, and stock prices. Its function is to give a broad-based look at general economic health and often predicts turning points in the business cycle.
The latest report shows that the LEI declined by 1.2% in March to 108.4. This follows a decline of 0.5% in February. From September 2022 to March 2023, the LEI was down 4.5%, which is steeper than the 3.5% decline for the previous six months.
This marks the 12th consecutive monthly decline, pointing to an upcoming recession in 2023. The decrease was larger than expected, with economists predicting a 0.7% drop according to the Wall Street Journal.
Of the 10 indicators, seven decreased in February. "Only stock prices and manufacturers' new orders for consumer goods and materials contributed positively over the last six months." Although the economy is currently still growing, recent stress on the banking system and potential increases in layoffs and reduced spending could lead to a recession, even if the Federal Reserve stops raising interest rates.
Despite the recession signals given by the leading index, there is still little sign of an impending recession. However, Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board, believes that economic weakness will become more widespread and intensify in the coming months, leading to a recession starting in mid-2023.
Source: The Conference Board
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Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.