Leading Indicators Show No Signs Of Slowing

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by: Bespoke Investment Group

The Leading Indicators report released this past Thursday reinforced signals of a strong US economy. From this release, there do not appear to be signs of a looming recession. Below we show the ratio of Leading Indicators to Coincident Indicators over the past 60 years. Historically, this ratio has been a very good leading indicator of recessions. Typically, but not always, when the ratio peaks then begins to fall, a recession is around the corner. This does not mean that a recession is necessarily in the near future. In fact, the ratio usually peaks in excess of a year before a recession and typically rolls over by the time the recession starts. Last Thursday's reading showed no signs of a reversal, rising to a cycle high of 1.0662.

Another way of looking at this indicator is on a year-over-year basis. This tells much of the same story. Months, or even years before a recession begins, the reading peaks then begins to decline. Right before a recession, it has never been on the rise.

August's report came in at 6.41%, which is the second-highest level since July 2014. Since 1980, the earliest a recession came following a period where the y/y change in leading indicators was above 5% was 24 months. The average amount of time that elapsed from the last 5% or more reading to the earliest stages of a recession was 35 months. No matter which way you cut it, the Leading Indicators do not show signs of a slowing economy.