Leading Economic Index Decline Adds to Recessionary Red Flags

  • The Conference Board’s Leading Economic Index showed another decline for October, suggesting the economy will finish the year on a low note.
  • The LEI isn’t the only worrying trend pointing to an eventual recession.
  • Even as the economy slows, the stock market could continue to climb in the near-term. But long-term worries persist.

On Thursday, the Conference Board revealed that its Leading Economic Index for the US declined to 111.7 in October. This is the third consecutive monthly decline for the LEI, and its six-month growth rate was negative for the first time since May 2016. The figures suggest the US economy is slowing; the Conference Board’s Ataman Ozyildirim says that by the end of the year, economic growth will have fallen below 2%. 

Recession on the Horizon?

This isn’t the first time economic data has started to wobble. Recession indicators and market crash warnings have been in the headlines for months now, and traders are becoming increasingly worried about the potential of a stock market crash. 

The Conference Board is a leading indicator, meaning it tends to signal economic movements before they occur. It’s certainly a well-respected indicator, but it would be irresponsible to rely on the LEI alone. That’s because although it’s based on a wide range of data dating back to the 1950’s, that range simply isn’t wide enough to create a reliable sample size. The data that the Conference Board uses has been through just 11 recessions. On top of that, much of the data was collected before the internet was even an idea— a good chunk is from a time when a wagon was considered a form of transportation. 

Bond Yields, recession, stock market
Bond yields are trending lower, a worrying sign of falling confidence in the US economy. | Source: CNBC

Still, the LEI is telling and it’s not alone in predicting a slowdown. Bond yields dipped this week as well on worries about crumbling trade negotiations between the US and China. Dropping yields suggest that investors are expecting rate cuts,…

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