LEI Reflects Economic Woes

Several economic indicators have recently reflected warning signs of a possible recession amid lingering general uncertainty. Adding to this multitude of indicators is the United States Leading Economic Index (LEI), which paints a concerning trend in the current market cycles.

According to data shared by Global Markets Investor in an X post on June 24, the LEI has plummeted by 14.7% from its recent peak in this economic cycle.

This substantial decline has historically signaled the onset of recessions over the past 65 years. The data, sourced from Bloomberg Finance and updated as of June 21, 2024, illustrates this worrying trend.

Historical Patterns and Current Trends

The LEI encompasses crucial economic indicators such as labor market data, manufacturing sector data, building permits, S&P 500 performance, and bonds.

Historically, every time the LEI experienced a similar decline, the US economy was either in or entering a recession.

These periods correspond to past recessions, showing a consistent pattern where a decline of this magnitude was a precursor to economic downturns.

The current LEI level is 101.20, a steep fall from its recent peak. If the historical pattern holds, the US economy might be heading toward another recession.

This highlights how critical these indicators have been 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.

The current LEI level is 101.20, a steep fall from its recent peak.

Labor Market and Treasury Yield Concerns

Regarding the labor market, a previous Finbold report noted that permanent job losses are 'accelerating aggressively' in the US.

Historical data shows that spikes in permanent job losses have consistently heralded recessions since 1995. Additionally, another Finbold report noted that the Federal Reserve model using the US Treasury yield curve indicates a 52% chance of an economic downturn over the next year. Although this probability has decreased from its peak of 71% in May 2023, a cautious approach remains warranted.

Fed's Role and Market Sentiments

In the meantime, with uncertainty around the recession, attention is on the Fed's following monetary policy. Market participants keenly observe how the Federal Reserve will respond to these alarming indicators. The Fed's actions will be pivotal in mitigating or exacerbating the potential economic downturn.

Given the LEI's historical accuracy in predicting recessions, this recent decline is significant and cannot be ignored. Other historical recession indicators have also been flashing warning signs in recent weeks.

The convergence of these indicators suggests that the US economy may be on the brink of another recession, making it imperative for stakeholders to stay alert and prepared.