The Conference Board’s Leading Economic Indicators (LEI) suggests that the U.S. economy’s slowdown may not necessarily point to an incoming recession. This outlook could further encourage participation in risk asset markets, including cryptocurrencies.
The fear of an economic downturn has been prevalent, but the LEI data presents a more hopeful picture. Existing financial conditions, despite the slowdown, might not portend a recession. This provides a degree of certainty and confidence in investing in risk asset markets.
The LEI is an index comprising key performance indicators like the mean manufacturing workweek, initial jobless claims average, the ISM new order index, stock prices, and leading credit index. In June, the LEI showed a slight decline of 0.2%, dropping to 100.4. This suggests anticipated changes in the market and economy.
Despite ongoing decline in the LEI signaling potential economic challenges, the July six-month annualized change of -2.1% is less severe than June’s -3.1%, pointing to a reduced recession likelihood.
Economic slowdown not foretelling US recession
Even with a consistent contraction, no drastic contraction suggesting a prolonged recession has been signaled by other economic indicators.
The market confronted a surge of recession concerns in early August due to a significant decrease in job creation rates in July. This led to considerable falls for stocks and Bitcoin. However, Bitcoin has now bounced back and is valued over $60,000, demonstrating resilience against the economic downturn.
The continually dipping LEI could suggest a late growth stage in the economy. At this point, current economic state indicators rise together with lagging indicators. This suggestion is supported by rising unemployment rates and fairly steady commercial inventories.
Nevertheless, economic acceleration tends to be unstable in this late growth stage, potentially leading to a future pullback. An increasing short-term interest rate often foreshadows a downturn in the economy, as the Federal Reserve generally raises rates in response to inflationary pressures.
However, new technological advances, such as those in the internet sector, could drive further economic expansion, providing a hopeful note amidst the typical late-growth indicators.
