LEI: Leading to Recession or Leading Us Up the Garden Path?

Source: Economics Group of Wells Fargo Bank, N.A. Summary The 0.4% decline in the Leading Economic Index (LEI) in August marks the 17th consecutive monthly decline. Six of the components barely budged, exerting a contribution smaller than 0.05 percentage points in either direction. A bounce in building permits was the only real positive. The Alarm May Have Gone Off Too Early, but It’s Not a False Warning The Leading Economic Index, a composite of multiple leading indicators, has been signaling recession for months (chart). The expression “leading (someone) up the garden path” is used to describe an effort to deceive someone by trying to convince them of something which is not true. After 17 monthly declines in this trusted bellwether, one might reasonably ask if a recession is really coming. From our perspective, the worst that can be said of the LEI is that the alarm came too early, but it is consistent with our expectation for a modest decline in GDP early next year. The LEI slid 0.4% in August and is roughly 5% lower than it was right before the pandemic struck (chart).The six-month average change, a leading indicator of recessions, has been below its recession-prediction threshold for 14 months now. The index’s precipitous decline has come at odds with activity data that have shown a resilient economy this year. READ FULL ARTICLE >>