The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Leading the Way

11/25/2019

Over the Summer and Fall, our economic data slowly got weaker and weaker.  For the last few months, the data has been looking a little brighter .  But the Index of Leading Economic Indicators (LEI) is still flashing bright red.  It has dropped for three straight months, primarily due to the recession in manufacturing.  The last time the LEI dropped three straight months was in 2009.

The optimistic outlook is that the October drop was very small and could indicate a bottoming.  The recent “accommodation” or ending of quantitative tightening (QT) by the Fed may be showing.  The pessimistic outlook is that the average workweek decreased while initial jobless claims increased.

The stock market is a major component of the LEI and prevented the LEI from falling more.

While the LEI is a fairly reliable predictor of economic recession, it has not been helpful in predicting a financial recession.  You’ll recall that the financial recession was already underway in 2009 by the time LEI flashed an economic recession.

While the probability of an economic recession next year has decreased, that probability is still high enough to remain probable.

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