April 22, 2024
Economy

Recession signs fade despite 22nd straight drop in Leading Economic Index


Last Updated: Feb. 20, 2024 at 10:39 a.m. ET

First Published: Feb. 20, 2024 at 10:00 a.m. ET

The numbers: The leading indicators of the economy fell in January for the 22nd month in a row — the third-longest losing streak ever — but the U.S. still doesn’t appear to be careening toward a recession.

The Leading Economic Index dropped 0.4% last month, the Conference Board said Tuesday. It’s fallen in every month since March 2022.

Yet…

The numbers: The leading indicators of the economy fell in January for the 22nd month in a row — the third-longest losing streak ever — but the U.S. still doesn’t appear to be careening toward a recession.

The Leading Economic Index dropped 0.4% last month, the Conference Board said Tuesday. It’s fallen in every month since March 2022.

Yet six of the 10 index components have shown positive results over the past six months, the board said. It’s the first time that’s happened in two years.

“As a result, the leading index currently does not signal recession ahead” said Justyna Zabinska-La Monica, senior manager of business cycle indicators.

The leading index is a gauge designed to show whether the economy is getting better or worse. Economists polled by The Wall Street Journal had forecast a 0.3% decline in January.

Big picture: The economy has endured the highest interest rates in 23 years with few scratches to show for it, but some economists say the odds of a recession could mount the longer the Federal Reserve sticks to its current approach. 

Fed officials have warned they won’t cut rates until it’s clear inflation is slowing steadily toward their 2% target, but the most recent gauges indicate prices are still somewhat sticky.

Still, the economy appears to be in relatively good shape for now. Gross domestic product surged in the second half of 2023 and is on track to grow a solid 2% or more in the first three months of the new year.

Key details: Rising incomes, increasing employment and a small rebound in manufacturing have been responsible for the fadeout of recession signals, the board said.

The U.S. economy lapsed into recession the two other times the index was negative for longer — 1973-1975 and 2007-2009. The post-pandemic period has broken from normal economic patterns, however.

Looking ahead: “While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent in the second and third quarters,” Zabinska-La Monica said.

Market reaction: The Dow Jones Industrial Average
DJIA
and S&P 500
SPX
fell in Tuesday trading.

Investors have been disappointed by the likelihood that the Federal Reserve won’t cut interest anytime soon.



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