Conference Board Abandons U.S. Recession Call After Months of Warning

The Conference Board renounced its long-standing prediction on Tuesday that the US economy will enter a recession, despite the fact that its Leading Economic Index continues to predict flat economic production in the coming months.

A measure of potential future economic activity, the Business Research Group's index dropped 0.4% in January to 102.7, the lowest since April 2020, when the United States experienced a brief recession following the start of the COVID-19 pandemic and associated shutdowns.

The Leading Economic Index (LEI) experienced its 23rd consecutive monthly decline, nearing the record-long slump observed during the global financial crisis from April 2007 to March 2009. However, there is a notable slowdown in the six-month annualized rate of decline, and the growth rate is now at its least negative since August 2022.

According to Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board, while the declining LEI still indicates headwinds to economic activity, there's a positive shift. Six out of its 10 components were positive contributors over the past six months, marking the first time in two years. As a result, the current LEI does not foresee an imminent recession.

In July 2022, the Conference Board made its initial announcement that the index was indicating an impending recession. Up until Tuesday's publication for January, it has reiterated that prediction with every report for the month, despite the fact that no recession has formed and that U.S. economic production, job creation, and consumer spending have all remained above trend levels.

Assessing the Influence of Stock Market Surge on Economic Prognosis

The recent spike in stock values to all-time highs was the biggest factor in the prognosis turning out to be wrong about a recession. Since late October, the benchmark S&P 500 index (.SPX) has increased by more than 20% as a result of indications from the Federal Reserve that rate reduction are anticipated this year and that the Fed's aggressive interest rate cycle intended to restrain inflation is over.

The revision in the prognosis was also influenced by the persistently low number of new applications for unemployment benefits, indicators of future credit availability, building permits for homes, and new orders for manufactured products.

Matthew Martin, U.S. economist at Oxford Economics, highlighted that the ongoing decline in the overall index is currently driven by a narrow set of indicators, which are expected to reverse course and trend higher in the coming months. Following the release of the LEI, Martin expressed optimism about the economic outlook, emphasizing that the economy remains in a growth phase.

In his note, Martin underscored the strength of the labor market, the easing of financial market conditions, and robust consumer spending as factors contributing to the positive outlook for 2024. Despite estimating a slightly lower first-quarter consumption growth rate of 2.1% compared to the baseline forecast of 2.5%, Martin noted that this level of growth would still support solid GDP growth of 2% in the first quarter.