The economic climate has been signaling possible recessionary trends recently, adding to the uncertainty that has been lingering. The United States Leading Economic Index (LEI) is one of the indicators that are raising concerns about the current market cycles.
According to data from Global Markets Investor, shared in a recent post on June 24th, the LEI has experienced a significant drop of 14.7% from its recent peak in the economic cycle. This is a worrying trend, as such declines have historically preceded recessions over the past 65 years.
The chart of the Leading US economic indicator, sourced from Bloomberg Finance and updated as of June 21, 2024, illustrates this concerning trend. The LEI includes important economic indicators such as labor market data, manufacturing sector data, building permits, S&P 500 performance, and bonds.
Historically, whenever the LEI has experienced a similar decline, the US economy has either been in or entering a recession. The current LEI level of 101.20, a steep fall from its recent peak, indicates that the US economy might be heading towards another recession if the historical pattern holds true.
This emphasizes the critical role of these indicators in predicting economic health, with previous significant drops correlating with recessions in the early ’80s, early ’90s, early 2000s, and during the 2008 financial crisis.
In addition to the LEI, other historical recession indicators have also been raising concerns in recent weeks. The labor market has shown signs of accelerating permanent job losses in the US, which historically have been precursors to recessions since 1995. Furthermore, the Federal Reserve model using the US Treasury yield curve indicates a 52% chance of an economic downturn over the next year, making it necessary to adopt a cautious approach.
As the uncertainty around a potential recession persists, attention is now focused on the Fed’s next monetary policy.
