Recession risks are rising in the near term, a gauge of leading indicators for the U.S. economy indicated Thursday.
The Leading Economic Index fell by 0.4 percent in July, after dropping 0.7 percent in June. Over the first six months of the year, the index is down 1.6 percent.
“The U.S. LEI declined for the fifth consecutive month in July, suggesting recession risks are rising in the near term,” said Ataman Ozyildirim, senior director for economics at the Conference Board.
Ozyildirim said the index was weighed down by consumer pessimism, a declining stock market, and slowing labor markets. Housing construction slumping and weakness in manufacturing orders also point to an intensification and spread of economic weakness throughout the economy.
“The Conference Board projects the U.S. economy will not expand in the third quarter and could tip into a short but mild recession by the end of the year or yearly 2023,” Ozyildirim said.
The LEI uses 10 indicators designed to show whether the economy is likely to strengthen or weaken in the coming months.
Some of the indicators have turned around in recent weeks. The stock market has rallied and the labor market has regained its strength, with unemployment claims falling and the unemployment rate falling to 3.5 percent. Housing and manufacturing, however, continue to weaken.
The Federal Reserve has been trying to cool down the economy by raising interest rates in order to tame inflation. The Consumer Price Index held steady in July, indicating a respite from inflation on a month-to-month basis but remained near the highest levels it has hit in four decades. Most economists believe that the unemployment rate will have to rise for the economy to cool enough to bring down inflation and that a recession is likely. Surveys indicate that 60 percent of the public think we are already in a recession after the economy contracted for two consecutive quarters this year.
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