Leading Index Still Signaling Economic Weakness Ahead

Economics Group of Wells Fargo Bank, N.A. Summary While the odds of the Fed achieving a soft landing may be rising, the Leading Economic Index slipped for the 16th straight month in July and continues to signal economic weakness is on the horizon. Is the Fever Starting to Break? The Leading Economic Index (LEI) continues to be consistent with a coming recession. The LEI slipped 0.4% in July, and is now down for 16 straight months (chart). It’s also now about 5% off its pre-pandemic level. The only positive in this release is the decline (-0.38% before rounding) is the smallest monthly drop in 11 months—a sign that potential economic resilience may be helping break the fever on the LEI. Most traditional recession indicators have signaled contraction for months, yet the economy has continued to expand at a fairly resilient clip. We still think it is more likely than not that tighter financial conditions cause the U.S. economy to slip into a mild contraction in the first half of next year, though we readily acknowledge continued economic strength has raised the odds of a soft landing. In particular, we have seen some recent re-acceleration in consumer and housing activity, that could help stave off economic contraction early next year. The Coincident Index rose 0.4% in July to an all-time high, which is consistent with an economy that remains solid today (chart).Regardless, we think a subdued pace of growth in 2024, even if the economy technically avoids recession, is highly likely. The LEI is certainly signaling such an environment. READ FULL ARTICLE >>