The US leading economic index (LEI) declined for the 15th consecutive month in June, making it the longest streak of decreases since the 2007-2009 recession. This decline indicates that the US economy is likely to slow down in the upcoming months.
Comprising ten economic indicators, the LEI anticipates future economic activity. These indicators include average weekly hours in manufacturing, average weekly initial claims for unemployment insurance, manufacturers’ new orders for consumer goods and materials, ISM® Index of New Orders, manufacturers’ new orders for nondefense capital goods excluding aircraft, building permits, stock prices, money supply, and interest rates.
The Conference Board, responsible for publishing the US leading economic index (LEI), attributed the June decrease to a weakened consumer outlook and an increase in unemployment claims. The consumer outlook index dropped to 90.2 in June from 91.6 in May, while the unemployment claims index rose to 4.2 from 3.8.
Additionally, the LEI now stands below its long-term trend, indicating further economic slowdown. This trend has persisted for the past two months.
Several headwinds are contributing to the US economy’s challenges. Rising interest rates, inflation, and supply chain disruptions are among the major concerns. The Federal Reserve’s efforts to combat inflation through higher interest rates may hinder economic growth. Inflation is impacting consumers’ purchasing power, eroding their paychecks. Moreover, supply chain disruptions are hindering businesses’ ability to obtain necessary goods.
The decline in the LEI also suggests an increased likelihood of a recession, with The Conference Board stating a 70% probability of one occurring within the next 12 months. Nonetheless, it’s essential to note that the LEI’s predictive accuracy regarding recessions is not flawless, as it has declined in the past without being followed by a recession.
