An economic recession looms for the third to fourth quarters of this year, according to the most recent monthly data reported by The Conference Board’s Leading Economic Index.
Those LEI numbers, which were reported for June, are what has sparked the dire forecast, observes Justyna Zabinska-La Monica, the TCB’s senior manager, Business Cycle Indicator.
“Taken together, June’s data suggests economic activity will continue to decelerate in the months ahead. We forecast that the US economy is likely to be in recession from Q3 2023 to Q1 2024.”
The main causes are elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending are poised to dampen economic growth further, she explains.
The TCB’s Coincident Economic Index (CEI) for the United States remained unchanged in June 2023 at 110.0 (after rising by 0.2% in May. The board says the CEI is now up 0.6% over the six-month period between December 2022 and June 2023, which is down from the 1.1% growth that it recorded over the previous six months.
The board’s 3D’s rule is considered a rule of thumb for interpreting the duration, depth and diffusion and has registered 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 turns out to be, the board points out.
Zabinska-La Monica explains that the 3D’s rule provides signals of impending recessions when two measurable circumstances take place.
One of these was said to occur when the diffusion index fell below the threshold of 50. The second happens when, simultaneously, the decline in the index over the most recent six months dropped below the threshold of -4.2%.
