U.S. Leading Economic Indicators Point to Recession Around Year’s End

A widely followed index of leading economic indicators fell by more than expected in June and indicates a recession is likely by the end of the year, the U.S. Conference Board said Thursday.

The group’s index of leading economic indicators (LEI), a weighted average of 10 predictive economic signals, fell 0.8 percent in June. Economists had predicted a milder 0.6 percent decline.

“The US LEI declined for a fourth consecutive month suggesting economic growth is likely to slow further in the near-term as recession risks grow,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Consumer pessimism about future business conditions, moderating labor market conditions, falling stock prices, and weaker manufacturing new orders drove the LEI’s decline in June. The coincident economic index which rose in June suggests the economy grew through the second quarter. However, the forward-looking LEI points to a US economic downturn ahead.”

Six of the ten broad indicators were in negative territory in June, reflecting diminished consumer expectations, climbing claims for unemployment benefits, declines in the Institute for Supply Management’s measures of new orders, plunging stock markets, a fall in building permit applications, and a shrinking average workweek. Orders for core capital goods and consumer goods from manufacturers made small positive contributions.

“Amid high inflation and rapidly tightening monetary policy, The Conference Board expects economic growth will continue to cool throughout 2022. A US recession around the end of this year and early next is now likely. Accordingly, we’ve downgraded our forecast of 2022 annual Real GDP growth to 1.7 percent year-over-year (from 2.3 percent), while 2023 growth was downgraded to 0.5 percent YOY (from 1.8 percent),” Ozyildirim said.