Leading Indices Signal Recession That Is Yet To Materialize

The Conference Board's Leading Economic Index fell for a 14th consecutive month in May, at -0.7% M/M, vs -0.6% in April albeit slightly better than the -0.8% expected.

• The LEI has been seen as a historically reliable recession indicator, with the long period spent in deeply negative territory seen as consistent with a recession starting soon - with the moving average contraction accelerating in the past 6 months (-4.3%) vs the prior 6 (-3.8%).
• In May, several categories weighed on the headline index, including ISM new orders, consumer expectations, rate spreads, and the leading credit index - more positive were building permits, jobless claims, and stock prices, with the average workweek neither contributing or subtracting.
• In other words, "soft" sentiment indicators dragged while housing activity and the labor market offset that weakness.
• The LEI continues to signal a recession in the next 12 months - but the contraction that has been flagged for the past several months is yet to materialize, including an upwardly revised Q1 GDP growth reading, and incoming data suggesting a decent Q2 outturn.
• Per the Conference Board report; "while we revised our Q2 GDP forecast from negative to slight growth, we project that the US economy will contract over the Q3 2023 to Q1 2024 period. The recession likely will be due to continued tightness in monetary policy and lower government spending.”"

Source: Conf Board, BBG, MNI