US LEI Declines for Second Month in September, Heightening Recession Concerns for 2025

US LEI Falls Again in September, Signaling Economic Slowdown

The Conference Board’s Leading Economic Index® (LEI) for the United States dropped by 0.5% in September 2024, reaching 99.7 (2016=100). This marks the second consecutive monthly decline after a 0.3% fall in August. Over the past six months, the LEI has fallen by 2.6%, a steeper decline than the 2.2% drop from September 2023 to March 2024. The LEI is a key indicator used to predict turning points in the business cycle, and its continued decline raises concerns about the near-term economic outlook.

Key Drivers of the Decline

Several factors contributed to the ongoing weakness in the LEI for September:

• Factory New Orders: Continued weakness in factory new orders, which has been heavily impacted by a global manufacturing slowdown, remained a significant drag on the index.
• Inverted Yield Curve: The yield curve remained inverted, a signal that often points to recessionary pressures.
• Building Permits: A decrease in building permits, a leading indicator of future construction activity, further weighed down the LEI.
• Consumer Sentiment: Consumers’ outlook for future business conditions was lukewarm, reflecting cautious sentiment about the economy’s trajectory.

While there were some positive developments in other LEI components, they were not enough to counterbalance the prevailing weakness. Justyna Zabinska-La Monica, Senior Manager at The Conference Board, remarked that these indicators align with their expectations for moderate economic growth at the end of 2024 and into early 2025.

Coincident Economic Index Sees Modest Growth

In contrast to the LEI, the Conference Board’s Coincident Economic Index® (CEI), which reflects the current state of the economy, edged up by 0.1% in September to 112.9. This followed a 0.2% increase in August. The CEI grew by 0.9% over the six months ending in September, an improvement from the 0.5% growth seen in the prior six months.

Key contributors to the CEI’s growth included payroll employment, personal income (excluding transfer payments), and manufacturing and trade sales. These indicators helped offset a decline in industrial production, reflecting a relatively stable economic environment despite the concerns raised by the LEI.

Lagging Index Also Signals Caution

The Conference Board’s Lagging Economic Index® (LAG) declined by 0.3% in September, dropping to 118.9, after remaining unchanged in August. Over the past six months, the LAG fell by 0.2%, reversing a 1.1% rise in the previous six-month period. The decline in the LAG signals that the economy is losing momentum, adding to the concerns highlighted by the LEI.

Economic Outlook

The persistent decline in the LEI, particularly in critical areas like new orders and the yield curve, suggests that economic growth is decelerating. Although the Coincident Economic Index indicates the economy remains stable for now, the risks of a recession remain elevated. The data points to a period of slower growth through the remainder of 2024 and into early 2025, with continued caution warranted for investors and businesses alike.

Forecast: Bearish

The consistent decline in the LEI and signs of softening in the Lagging Index suggest a bearish outlook for the near-term economy. Although the Coincident Index shows some resilience, the overall trend points to slower growth and increased recession risks heading into 2025.