U.S. Economic Indicators Show Slowdown Without Recession Risk

U.S. Economic Indicators Signal Slowdown, But Recession Risks Diminish

The latest data from the Conference Board, a respected nonpartisan research organization, reveals that while the leading U.S. economic indicators continue to point towards a slowdown, they no longer indicate an imminent recession. This development is a positive signal for risk assets, including cryptocurrencies.

The Conference Board’s Leading Economic Index (LEI) experienced a decline of 0.6% in July, bringing the index down to 100.4, following a modest 0.2% drop in June. This downward trend began after the LEI peaked in the second quarter of 2022, according to insights from MacroMicro, a data analytics source.

The LEI comprises several forward-looking metrics, including:

• Average weekly hours in manufacturing
• Average weekly initial claims for jobless insurance
• ISM new orders index
• Stock prices
• Leading credit index

These indicators are crucial for identifying shifts in economic trends and financial market turning points, making the LEI one of the most reliable precursors of a recession, which is defined by consecutive quarterly contractions in growth rates.

Despite the ongoing decline in the LEI, it’s noteworthy that the annualized six-month change improved slightly, narrowing to -2.1% in July from -3.1% in June. This change suggests that the risk of a recession is lessening. Justyna Zabinska-La Monica, a senior manager of business cycle indicators at the Conference Board, commented, “The LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals recession ahead.”

This latest reading is likely to provide reassurance to investors in risk assets, as the pain trade in stocks and cryptocurrencies may now be skewed towards the upside, especially in light of the recent market downturn and the pervasive negative sentiment.

Earlier this month, recession fears gripped the market following the release of U.S. nonfarm payrolls data, which indicated a significant slowdown in job creation for July. This led to a bull steepening of the Treasury yield curve, which is often interpreted as a recession signal, alongside warnings from the so-called Sahm’s Rule. Additionally, the mass unwinding of yen carry trades exacerbated market anxieties.

Consequently, stock prices plummeted, with Bitcoin witnessing a sharp decline from $70,000 to $50,000. However, the leading cryptocurrency has since rebounded and is currently trading above $60,000, according to data from CoinDesk.

The accompanying chart illustrates that while the Conference Board’s leading index continues its downward trend, coincident indicators—reflecting the current state of the economy—are on the rise, along with lagging indicators. This scenario is a classic indication of an economy in the late stages of expansion.