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WARNING: Leading Economic Indicators Are Now Flashing CODE RED

By Last Updated: November 21, 2023
Reading Time: 3 minutes

Economic Indicators Signal Potential Recession, Contrary to Mainstream Optimism

Despite prevailing market enthusiasm, a confluence of leading economic indicators suggests the U.S. may be edging towards a recession.

In the midst of a seemingly robust economy, a series of economic indicators are flashing red, raising the specter of a recession. Market optimists and mainstream media narratives continue to champion the strength and resilience of the economy, yet data from leading indicators could imply that the United States is currently in the throes of an economic downturn.

The Silent Harbinger: NBER’s Role in Economic Prognosis

The National Bureau of Economic Research (NBER), the official arbiter of U.S. recessions, typically announces the start of a recession well after its onset. Historical precedent suggests that the NBER’s pronouncements often come months, sometimes a year, after a recession has begun. For instance, the NBER declared in December 2008 that the economy had peaked a year prior, in December 2007, effectively confirming a recession well into its existence.

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of US recessions. The committee determined that a peak in economic activity occurred in the US economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession.

National Bureau Of Economic Research

Current Economic Health: A Deceptive Picture?

Presently, the NBER has not signaled a recession, leading many to conclude that the economy remains on solid footing. However, the silence from this official body should not be misconstrued as a sign of economic vitality. The Leading Economic Index (LEI), a composite of ten economic indicators designed to signal peaks and troughs in the business cycle, has posted its most prolonged decline since the Great Recession.

Data Points to Ponder

The LEI declined by 0.8% in October, marking the nineteenth consecutive month of decline — a streak not seen since the lead-up to the 2008 financial crisis. Building permits have emerged as a solitary positive contributor, overshadowed by negative inputs from ISM new orders and average consumer expectations. These indicators, traditionally seen as precursors to economic shifts, may be painting a picture that many investors and analysts are reluctant to acknowledge.

Market Reaction and Investor Sentiment

While the broader market indices remain buoyant, the persistent negative trend in leading indicators cannot be ignored. Despite the upticks and record highs in some indices, the underlying economic data suggests that the economy may not be as healthy as surface-level analysis would indicate.

The Path Forward: A Recession in Sight?

The question remains: Are we on the precipice of a recession, or are we already in one? The LEI’s downward trend aligns with past recessions, and if historical patterns hold, the U.S. could be in the midst of an economic contraction that has yet to be officially declared.

Navigating the Economic Landscape

As investors and policymakers navigate this uncertain terrain, the coming months will be crucial in determining whether the current economic malaise will deepen into a full-blown recession. With the LEI’s track record as a reliable harbinger, the signs are too significant to dismiss. It’s a reminder that even in times of apparent prosperity, vigilance is essential, and the LEI serves as a crucial tool for anticipating what may lie ahead for the U.S. economy.

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