Continued Economic Uncertainty: U.S. Leading Economic Index Falls Again in July

The U.S. economy continues to face uncertainty as the economic index measuring business cycles declined for the 16th consecutive month in July, according to the Conference Board. The Leading Economic Index dropped by 0.4% to 105.8, following a 0.7% decline in June. These figures indicate weakening underlying components and paint a challenging economic outlook.

Consistent with economists' expectations, this decline suggests that economic activity is likely to slow down further and potentially enter a mild contraction in the coming months. Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at the Conference Board, pointed to several factors contributing to the July decline. Weak new orders, high interest rates, a decrease in consumer perceptions of business conditions, and reduced working hours in manufacturing all played a role.

The Conference Board projects a short and shallow recession from the fourth quarter of 2023 to the first quarter of 2024. However, there is some positive news as well. The Coincident Economic Index, which measures current economic activity, improved by 0.4% in July, reaching 110.5. The Lagging Economic Index remained unchanged for the second consecutive month at 118.3.

The Leading Economic Index serves as a predictive variable that helps anticipate turning points in the business cycle, with a lead time of approximately seven months. It is based on ten key components, including initial claims for unemployment insurance, manufacturers' new orders, building permits for new private housing units, stock prices, and consumer expectations. By analyzing these factors, the index aims to signal shifts in the business cycle and provide valuable insights into future economic trends.