A top recession indicator is flashing red for the 21st consecutive month, signaling a downturn on the horizon. But a chorus of economists has championed a soft landing, with many experts expecting the U.S. economy to avert back-to-back quarters of negative growth.
The Conference Board’s Leading Economic Index (LEI), a gauge of the economy’s strength, slipped by 0.1 percent in December 2023—slightly better than the consensus estimate of negative 0.3 percent—following a 0.5 percent drop in November 2023. The LEI contracted by 2.9 percent during the six-month span between June 2023 and December 2023; it was an improvement over the 4.3 percent decline in the previous six-month period.
The latest reading continues “to signal underlying weakness in the U.S. economy,” said Justyna Zabinska-LaMonica, senior manager of business cycle indicators at The Conference Board.
“As the magnitude of monthly declines has lessened, the LEI’s six-month and 12-month growth rates have turned upward but remain negative, continuing to signal the risk of recession ahead,” she said in a statement. “Overall, we expect GDP growth to turn negative in Q2 and Q3 of 2024, but begin to recover late in the year.”
The two periods when the LEI was in subzero territory for longer occurred from 1973 to 1975 and 2007 to 2009. Each time, a recession happened.
In addition, The Conference Board’s Coincident Index, which assesses various indicators such as payroll employment, industrial output, and personal income less transfer payments, rose by 0.2 percent, which was unchanged from the previous month.
Despite recession calls last year, the economy has defied these expectations, even in an environment of high inflation, rising interest rates, and substantial debt growth.
Recession Talk in 2024
The odds of a recession within the next year have fallen to 39 percent, according to The Wall Street Journal’s latest survey of academic and business economists. This is down from 48 percent in October 2023.Looking ahead, experts forecast growth to be just 1 percent this year, down from a projected 2.6 percent in 2023.
Similar numbers were spotted in the National Association for Business Economics (NABE) survey. The polling data highlighted that 91 percent of respondents think the probability of the U.S. economy slipping into a recession over the next year is 50 percent or less.
Consumer sentiment has also rocketed in the past two months after being stuck in the doldrums for nearly all of 2023.
The University of Michigan’s Consumer Sentiment Index (CSI) soared to its highest level since 2021 this month, supported by easing inflation expectations and strengthening income predictions.
However, some economists and business leaders argue that it’s too premature to champion a mission accomplished.
“I’m a little skeptical in this kind of Goldilocks kind of scenario,” JPMorgan Chase CEO Jamie Dimon told Fox Business Network on Jan. 9. “It might be a mild recession or heavy recession.”
James Iuorio, managing director of the TJM Institutional Services, said during an interview with the business news network on Jan. 22 that “we are absolutely going to go into a recession,” citing a slump in bank lending, soaring credit card debt, and rising delinquency rates.
Bank credit has tumbled for three straight quarters, according to recent Federal Reserve data. The last time that it was this prolonged occurred during the global financial crisis.
Credit card debt is close to $1.1 trillion, while delinquency rates have nearly doubled.
“I have it at zero percent chance we avoid a recession this year,” Mr. Iuorio said, explaining that government spending has obfuscated economic conditions.
Last year, the government accounted for about one-quarter of all job creation. In the third quarter of 2023, government spending contributed one-third of growth.
Others, including Matt Schoeppner, senior economist at U.S. Bank, expect the United States to face a “growth recession,” an ecosystem of slowing growth and a labor market staying intact.
“It seems likely the economy may avoid a recession in the near term, though we can expect that real GDP growth will remain modest over time,” Mr. Schoeppner said in a note. “It might qualify as what we call a ‘growth recession,’ where we see a slow economy, but with few ramifications for the job market.”
White House Optimistic
The turnaround in evaluating the U.S. economy has made the Biden administration more ebullient, as the presidential election is less than 10 months away.“In the latest sign that President Biden’s economic plan is delivering results that more Americans are feeling, today we learned consumer sentiment surged by 29 percent over the last two months. That’s the biggest two-month jump in more than 30 years,” Jared Bernstein, head of the Council of Economic Advisers, said in a statement. “We have more work to do, but we’re on the right path as we execute President Biden’s agenda, and people are starting to feel it.”
Earlier this month, Treasury Secretary Janet Yellen declared that the U.S. economy accomplished a soft landing.
“What we’re seeing now, I think we can describe as a soft landing, and my hope is that it will continue,” Ms. Yellen said in a Jan. 5 interview with CNN.
“Wage increases are running over price increases now.
“American workers are getting ahead, and the progress for the middle-income families is very noticeable.”
Meanwhile, the data numbers are not translating to improving poll numbers.
The latest Harvard-Harris survey showed that President Joe Biden’s approval rating on the economy is 40 percent.
