The Conference Board’s pivotal economic metric has decreased for the 17th consecutive month due, in part, to the Federal Reserve’s aggressive rate hikes. The Leading Economic Index (LEI), a predictive gauge comprising ten distinct indicators, diminished by 0.4 percent in August, marking a six-month decrease of 3.9 percent in the LEI measure, engineered to forecast business cycle alterations, including recessions.
A senior manager at the Conference Board, Justyna Zabinska-La Monica, pointed out that the US Leading Economic Index has continuously declined for nearly a year and a half. This indicates a challenging growth phase and a potential recession that may occur in the next year. The leading index’s downturn was exacerbated by a slump in new orders, dwindling consumer expectations regarding future business conditions, stricter credit circumstances, and the Federal Reserve’s assertive rate hikes.
Zabinska-La Monica remarked that these elements indicate that the economic activity is likely to slow down, experiencing a brief yet mild contraction shortly. The Conference Board anticipates a 2.2 percent expansion in the Gross Domestic Product (GDP) for 2023, which is expected to taper off to 0.8 percent in 2024.
The nation has been vigilant about a possible recession for a while, with some analysts positing that a recession occurred last year and another one is on the horizon. The initial two quarters of 2022 witnessed a contraction in America’s economic output by 1.6 percent and 0.6 percent, respectively. This contraction, defined by two successive quarters of negative growth, implies a downturn.
According to the Atlanta Fed’s real-time economic growth estimator, GDP nowcast projects a 4.9% growth in Q3 2023, indicating no signs of a recession.
Economic analyst Mike “Mish” Shedlock foresees a double-dip recession, characterized by a brief recovery phase followed by a downturn, re-entering the recessionary zone. Shedlock emphasized that never before have such indicators persisted for this long without an ensuing recession.
He also brought attention to an alternative metric called GDPplus, devised by economists at the Philadelphia Fed, which incorporates gross domestic income (GDI) to provide a real-time estimate of economic activity.
According to Shedlock, GDI is often a more accurate measure of recessions. The data from the Philly Fed indicates negative GDI growth for Q4 2022 and Q1 2023, turning positive in Q2 2023 (0.5%). Shedlock interprets this data as a sign of another impending recession, possibly indicating a double-dip recession later this year.
Furthermore, the housing market data, traditionally a late indicator of a recession, has also been flashing red flags. The National Association of Realtors reported the following: a 0.7% decrease in existing home sales in August, resulting in a 15.3% year-over-year decline. Despite declining transactions, the median existing-home sales price surged by 3.9 percent to $407,100, marking the third consecutive month of prices soaring above $400,000.
Shedlock attributes this unusual dynamic to the Fed’s lenient monetary policies, which, according to him, have introduced market distortions. He criticizes the Fed for overlooking blatant inflation signs and continuing with its asset-buying program known as quantitative easing and maintaining near-zero interest rates for an extended period.
In a recent blog post, Shedlock emphasized that despite widespread denial, a real estate market crash is in progress. In its latest meeting, the Federal Open Market Committee (FOMC) opted to keep interest rates unchanged, maintaining the benchmark fed funds rate between 5.25 percent and 5.5 percent, the highest in 22 years. However, they left the door ajar for one more rate hike before 2023 ends, with smaller rate reductions anticipated in 2024.