Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Since the Leading Economic Index first slipped into negative territory in early 2022, economic growth has been steady and recession has been avoided. This is evident in the gap between the Leading Index and the Coincident Index. In fact, the spread has seldom been larger. We explore how in prior cycles that has marked a late-cycle turning point for the better.
Approaching the Cycle Low… Really?
The 0.2% decline in the Leading Economic Index is a slightly “less bad” outcome than what had been expected. This bellwether for the broader economy remains under pressure from depressed manufacturing orders, sour consumer sentiment and an uptick in initial claims for unemployment. At 101.1 in June, the LEI is only slightly above the reading of 100.5 it notched in May 2020 during its low point of the pandemic recession (chart). Is the outlook for the economy foretold by the LEI really as bad now as it was at its low point during the pandemic recession?
The spread between the Coincident Index and the Leading Index, a measure of how the economy is currently performing compared to how the LEI expects it to perform in the near future, is now sitting at 11.5, the widest it has been since 2008 (chart). While the LEI has been ever-declining over the past two and a half years, the Coincident Index, meanwhile, has been steadily climbing since it emerged from the pandemic recession.