For months now, the historically reliable Conference Board’s leading economic index has signaled a recession ahead for the U.S. economy but it has not materialized.
In December, slightly more than half the indicators were positive, although the overall index fell 0.1% following a 0.3% in the prior month.
On Tuesday, markets and economists will get a look at the January LEI. The early betting is that it will have declined again.
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The negative reading of the index is being driven by weakness in the manufacturing sector, high interest rates and poor consumer confidence. While the latter has improved a lot in recent months, the outlook is for interest rates to remain high and manufacturing soft.
Some relief for interest rates may come on Wednesday when the Federal Reserve releases the minutes of its January meeting. Although the Fed kept interest rates unchanged, Chairman Jerome Powell quashed the idea of a rate cut at the central bank’s March meeting. That moved expectations of the Fed’s first cut to May or even June, and the idea of six rate cuts this year that was on the table at the end of last year and early in 2024 now seems implausible.
“We may not get as many rate cuts this year as people expected,” says Chris Barto, investment analyst at Fort Pitt Capital Group. He notes that the labor market, for one, is showing continued strength.
“We see these layoffs getting announced but people are getting jobs right back again and people continue spending,” Barto adds.
Indeed, there is currently as much concern the economy is too hot as that it is weakening and headed for a downturn. The current forecast from the Federal Reserve Bank of Atlanta’s GDPNow model has the economy growing by 2.9% in the first quarter. Last week’s hotter-than-expected readings on inflation for January show that it is proving tougher to bring the annual rate of price increases down to the Fed’s 2% target than anticipated.
“The minutes of the Federal Reserve’s January Federal Open Market Committee meeting may clarify how much more “good data” the Fed’s policymakers want to see before starting to reduce interest rates,” Comerica Chief Economist Bill Adams said. “Chair Powell said at the press conference following the January decision that he saw a March cut as unlikely, but was uncharacteristically vague about exactly what the Fed’s preconditions for cuts are; this suggests FOMC members still disagree about the issue.”
“The minutes are also likely to shed light on the discussion planned for the March meeting about slowing the pace of the Fed’s balance sheet reduction,” Adams added.
The week’s economic data will also feature a report Thursday on existing home sales for January, with expectations they will have risen, though bad weather in some parts of the country may be a factor.