US Leading Economic Index (LEI) M/M -0.6% vs. -0.3% expected

• US LEI -0.6% vs. -0.3% expected and -0.3% prior.

Comment:

“Another decline in the U.S. LEI confirms that softer economic conditions lay ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

“Deterioration in consumers’ outlook on business conditions, weaker new
orders, a negative yield spread, and a drop in new building permits
fueled April’s decline. In addition, stock prices contributed negatively
for the first time since October of last year. While the LEI’s
six-month and annual growth rates no longer signal a forthcoming
recession, they still point to serious headwinds to growth ahead. ”

“Indeed, elevated inflation, high interest rates, rising household debt,
and depleted pandemic savings are all expected to continue weighing on
the US economy in 2024. As a result, we project that real GDP growth
will slow to under 1 percent over the Q2 to Q3 2024 period.”

Notably, the LEI 6-month growth rate annualised did not signal a recession for the second consecutive month. Per Conference Board’s note on this indicator: “The chart illustrates the so-called 3Ds rule which is a reliable rule of thumb to interpret the duration, depth, and diffusion – the 3Ds – of
a downward movement in the LEI. Duration refers to how long-lasting a
decline in the index is, and depth denotes how large the decline is.
Duration and depth are measured by the rate of change of the index over
the last six months. Diffusion is a measure of how widespread the
decline is (i.e., the diffusion index of the LEI ranges from 0 to 100
and numbers below 50 indicate most of the components are weakening).”

“The
3Ds rule provides signals of impending recessions 1) when the diffusion
index falls below the threshold of 50 (denoted by the black dotted line
in the chart), and simultaneously 2) when the decline in the index over
the most recent six months falls below the threshold of -4.4 percent.
The red dotted line is drawn at the threshold value (measured by the
median, -4.4 percent) on the months when both criteria are met
simultaneously. Thus, the red dots signal a recession.”

This article was written by Giuseppe Dellamotta at www.forexlive.com.