Evening Brief – 04.20.23

The decline in the Conference Board’s Leading Economic Indicators (LEI) picked up speed in March, falling 1.2% month-over-month, and far exceeding the 0.7% decline expected. On a year-over-year basis, the LEI is down 7.8%, worse than the 6.6% year-over-year in February and close to its biggest drop since 2008. This is the 12th straight monthly decline in the LEI – the longest streak since the Lehman bankruptcy in 2008.

“The US LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

Despite the argument for a “soft landing”, the LEI is showing no signs of recovery. The downward trajectory continues to signal a recession over the next 12 months.

The Conference Board forecasts that “economic weakness will intensify and spread more widely throughout the US economy over the coming months, leading to a recession starting in mid-2023,” citing high inflation and the Fed’s restrictive monetary policy.

At the same time, the Philadelphia Fed Business survey unexpectedly sunk to –31.3 in April, its lowest level since March 2009 (other noteworthy dates to remember when the Philly Fed was around these levels: 2020, 2001 and 1991). This is the eighth straight month of contraction and 10th out of the last 11 months. A key component, the prices paid index, fell to 8.2 from 23.5.

These data points may be the clearest view of the Fed’s tightening impact on the economy. The argument will continue as to whether we are in, or will likely soon be in, a recession. But even on the small chance one is averted, the economy is already undergoing a transition and is likely on a slow walk to recession. It should not be a shock that one of the most aggressive monetary policy tightening cycles in four decades is now beginning to take hold.