ILCB - Recession Alarm With No False Positives

2024-01-08 14:15:00 ET

Summary

• There has never been an incidence in history where US Conference Board LEI had a 6-month average growth rate sub -4.5%.
• The six-month smoothed LEI growth rate in November was -7.5% and has been negative for 20 consecutive months.
• When we combine sub -4.5% LEI trend with inverted 10-year minus 3-month yield spread and falling GDI, the warning of incoming recession has never been louder.

There has never been an incidence in history where the US Conference Board Leading Economic Index ((LEI)) had a six-month average growth rate sub -4.5%, and the US economy did not enter an NBER-defined recession.

The six-month smoothed LEI growth rate in November was -7.5% (chart below since 2000, courtesy of ISABELNET.com) and has been negative for 20 consecutive months, something only seen before the 1974 and 2008 recessions (stock markets halved and unemployment leapt during both).

(The 10 data points in the LEI are the leading credit index, S&P 500 stock prices, yield spread between the 10-year Treasury and the Fed funds rate, average consumer expectations for business conditions, ISM new orders, building permits, average weekly hours worked in manufacturing, manufacturing new orders, consumer goods orders, average weekly initial jobless claims).

When we combine the sub -4.5% LEI trend with the inverted 10-year minus 3-month yield spread and falling Gross Domestic Income ((GDI)), the warning of incoming recession has never been louder. Yet, most are ill-prepared.

Economist Eric Basmajian does an excellent job of explaining the significance of these signals in the segment here .

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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