Leading Indicators: Not Good, But Not Doomed Either

by: Hale Stewart

By New Deal Democrat

The January index of Leading Economic Indicators fell -0.2, its 4th decline in 7 months, as shown in this graph from Briefing.com:

While this isn't good, if historical patterns hold, it is not consistent with a recession happening yet.

Typically, it takes at least 8 of the 10 indicators falling over a 6-month period to herald the beginning of a recession:

Between July of last year and January of this year, 5 of the 10 indicators fell. One was neutral, and 4 improved. At least 2 of the 5 declining indicators that fell (initial claims, which have improved in the last few weeks, and housing permits, which only suffered due to comparison with the June spike caused by NYC) look likely to flip positive on a 6-month basis this month. Incidentally, permits is the only series on the "consumer" side of the ledger to have declined.

It is also worth noting that on the producer side of the ledger, "core capital goods orders" have been positive for the last 5 months, and although ISM new orders were scored negative, they actually showed slight growth in January.

So while I don't want to sugarcoat what is after all a bad number, it still does not mean DOOOM!