Recession Watch: A Key Indicator is Flashing Red as Unemployment Climbs

The US economy is facing a growing storm, and one of the most accurate recession indicators is sounding the alarm. The Conference Board’s Leading Economic Index (LEI), a powerful tool used to predict economic downturns, has been steadily declining for months. And, with unemployment rates on the rise, the warnings are becoming increasingly urgent.

What is the LEI?

The LEI is a composite index comprised of ten key economic indicators, including building permits, consumer expectations, and manufacturing orders. This diverse range of factors gives a well-rounded view of the overall health of the economy.

The LEI’s Recent Performance

The LEI has been on a downward trajectory since the beginning of 2022, with its most recent reading in August 2023 showing a 1.2% decline year-over-year. This is a significant drop, and the largest decline since the beginning of the pandemic.

Unemployment on the Rise

Adding fuel to the fire, the unemployment rate has been steadily increasing. In August 2023, the unemployment rate reached 3.8%, a notable rise from the 3.5% reported in June. This rise in unemployment is a clear sign of a weakening labor market, a key factor that contributes to the LEI’s decline.

What Does This Mean for the Economy?

The combination of a declining LEI and rising unemployment paints a concerning picture. Historically, the LEI has been a reliable indicator of impending recessions. A six-month decline in the LEI has consistently preceded a recession in the past. This doesn’t mean a recession is guaranteed, but it does highlight the significant risks facing the economy.

What Can Be Done?

While these economic indicators are cause for concern, it’s crucial to remember that the situation is not yet set in stone. Government intervention, changes in monetary policy, and consumer spending can all influence the trajectory of the economy.

It’s time for businesses and individuals to be prepared for potential economic headwinds. This might mean revisiting budgets, diversifying investments, and focusing on building strong financial reserves. Staying informed and taking proactive steps can help navigate the current economic uncertainty.