Index Of Leading Economic Indicators Saw Biggest Monthly Drop Since Covid Shock, Never This Large Without Recession

Index Of Leading Economic Indicators Saw Biggest Monthly Drop Since Covid Shock, Never This Large Without Recession


A retail location for rent, March 25, 2021, in the SoHo neighborhood of New York. (AP Photo/Mark Lennihan)

The Conference Board’s index of leading economic indicators saw the biggest monthly drop in November since the covid shock, falling for the ninth month in a row and pointing to recession in 2023.

The November drop was driven mostly by a cooling housing market, higher jobless claims, and a manufacturing slowdown.

The six-month decline in the leading index has never been this large without a recession, according to The Daily Shot newsletter.

Source: @TheTerminal, Bloomberg Finance L.P.

The economy is still expanding as 2022 draws to a close, but rising interest rates set by the Federal Reserve to curb high inflation could stall growth in 2023, Market Watch reported. Many economists predict a recession.

“We went from a Fed that was way too easy to being irresponsibly tight,” said Joseph LaVorgna, chief U.S. economist at SMBC Capital Markets and a former senior economic advisor to former President Donald Trump, in an October CNBC report. “When this basket is signaling the weakness that it’s showing, what the Fed typically does is not raise rates. But in this case, it’s not only raising rates aggressively, but with a commitment to continue raising rates aggressively.”

The Composite Index of Leading Indicators, known as the Leading Economic Index (LEI), is an index published monthly by The Conference Board, a nonprofit research organization that distributes economic information to its business members.  

The index is composed of 10 economic components whose changes tend to precede changes in the overall economy. These 10 components include:

  • Average weekly hours in manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders for consumer goods and materials
  • Building permits for new private housing
  • S&P 500 index of stock prices
  • Leading Credit Index
  • Interest rate spread (10-year Treasury bonds less federal funds rate)
  • Average consumer expectations for business conditions.

The LEI for the U.S. decreased by 1 percent in November 2022 following a decline of 0.9 percent in October, the Conference Board said in a press release. The LEI is now down 3.7 percent over the six-month period between May and November 2022—a much steeper rate of decline than its 0.8 percent contraction over the previous six-month period, between November 2021 and May 2022.

“Only stock prices contributed positively to the US LEI in November,” said Ataman Ozyildirim, senior director of economics at The Conference Board, in a prepared statement. “Labor market, manufacturing, and housing indicators all weakened—reflecting serious headwinds to economic growth. Interest rate spread and manufacturing new orders components were essentially unchanged in November, confirming a lack of economic growth momentum in the near term.”

Another Conference Board index reflected resilience in the economy. The Conference Board Coincident Economic Index (CEI) for the U.S. increased by 0.1 percent in November 2022 after an increase of 0.2 percent in October.

The CEI rose by 1.2 percent over the six-month period from May to November 2022, faster than its growth of 0.7 percent over the previous six-month period. CEI components—payroll employment, personal income less transfer payments, manufacturing trade and sales, and industrial production—are included among the data used to determine recessions in the U.S. Only the industrial production index contributed negatively to the CEI in November.

“Despite the current resilience of the labor market—as revealed by the US CEI in November—and consumer confidence improving in December, the US LEI suggests the Federal Reserve’s monetary tightening cycle is curtailing aspects of economic activity, especially housing,” Ozyildirim said. “As a result, we project a U.S. recession is likely to start around the beginning of 2023 and last through mid-year.”