U.S. Leading Economic Index Drops Again in August; Lowest Level Since June ’20
Summary
- LEI down for the 17th straight month, possibly signaling a brief but mild recession over the next year.
- Coincident Economic Index up for the fourth time in five months.
- Lagging Economic Index up for the second consecutive month.
The U.S. Leading Economic Index (LEI) fell 0.4% m/m in August after drops of 0.3% in July (-0.4% initially) and 0.6% in June (-0.7% previously), according to a report released today by The Conference Board. A 0.5% m/m decline in August had been expected in the Action Economics Forecast Survey. The August LEI at 105.4 was the lowest level since June 2020 and down from its record high of 117.8 in December 2021. The year-on-year rate of decline was at -7.6% in August, more severe than -7.5% in July and -1.1% in August 2022.
Over the six-month period between February and August 2023, the LEI had fallen 3.8%, little changed from its 3.9% drop over the prior six months (August 2022 to February 2023). The Conference Board LEI has been a very accurate leading indicator of recessions in its more than 60-year history. The latest readings continue to signal weakening economic growth prospects and recession risks. The Conference Board reported that “going forward economic activity probably will decelerate and experience a brief but mild contraction,” forecasting that “real GDP will grow by 2.2 percent in 2023, and then fall to 0.8 percent in 2024.”
Six of the LEI's ten indicators in August contributed negatively to the index change including the ISM new orders index (-0.19ppt), average consumer expectations for business/economic conditions (-0.17ppt), the spread between the 10-year Treasury note & the Fed funds rate (-0.15ppt), the S&P 500 index of stock prices (-0.05ppt), the leading credit index (-0.04ppt), and initial claims for unemployment insurance (-0.01ppt). Meanwhile, building permits for new private housing units (0.20ppt), manufacturers’ new orders for nondefense capital goods excluding aircraft orders (0.02ppt), and manufacturers’ new orders for consumer goods & materials (0.01ppt) contributed positively. Average weekly hours in manufacturing were unchanged.
The Coincident Economic Index (CEI) rose 0.2% m/m (1.4% y/y) to 110.6 in August, the fourth monthly rise in five months, after a 0.3% increase in July (+0.4% initially) and no change in June (unrevised). All four of the CEI’s components made positive contributions to the August rise. They were industrial production (0.07ppt), personal income less transfer payments (0.07ppt), payroll employment (0.04ppt), and manufacturing & trade sales (0.04ppt).
The Lagging Economic Index (LAG) increased 0.2% m/m (2.1% y/y) to 118.5 in August following a 0.1% uptick in July (0.0% initially) and a 0.1% easing in June (0.0% previously). Four of the LAG's seven components made positive contributions to the index change including the average prime rate charged by banks (0.07ppt), the average duration of unemployment (0.03ppt), the manufacturing & trade inventory-to-sales ratio (0.01ppt), and the consumer installment credit-to-income ratio (0.01ppt). Meanwhile, the change in the services CPI (-0.05ppt), commercial & industrial loans outstanding (-0.05ppt), and the change in factory sector unit labor costs (-0.01ppt) contributed negatively.
The ratio of the CEI to the LAG, also viewed as a leading indicator of recession, was at 93.3 in August and July after registering at 93.1 in June and May. The 93.3 reading was the same as in October 2022 and the highest since 93.4 in September 2022. While having begun to exhibit a slight uptrend, the ratio remained below its March 2021 high of 100.1.
The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations are in the AS1REPNA database. Visit the Conference Board's website for coverage of leading indicator series from around the world.
Winnie Tapasanun
AuthorMore in Author Profile »Winnie Tapasanun has been working for Haver Analytics since 2013. She has 20+ years of working in the financial services industry. As Vice President and Economic Analyst at Globicus International, Inc., a New York-based company specializing in macroeconomics and financial markets, Winnie oversaw the company’s business operations, managed financial and economic data, and wrote daily reports on macroeconomics and financial markets. Prior to working at Globicus, she was Investment Promotion Officer at the New York Office of the Thailand Board of Investment (BOI) where she wrote monthly reports on the U.S. economic outlook, wrote reports on the outlook of key U.S. industries, and assisted investors on doing business and investment in Thailand. Prior to joining the BOI, she was Adjunct Professor teaching International Political Economy/International Relations at the City College of New York. Prior to her teaching experience at the CCNY, Winnie successfully completed internships at the United Nations. Winnie holds an MA Degree from Long Island University, New York. She also did graduate studies at Columbia University in the City of New York and doctoral requirements at the Graduate Center of the City University of New York. Her areas of specialization are international political economy, macroeconomics, financial markets, political economy, international relations, and business development/business strategy. Her regional specialization includes, but not limited to, Southeast Asia and East Asia. Winnie is bilingual in English and Thai with competency in French. She loves to travel (~30 countries) to better understand each country’s unique economy, fascinating culture and people as well as the global economy as a whole.
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