Leading Indicator Index: Challenging Expectations | Episode 085 | 12-21-2023

In today's episode, Chief Investment Officer Megan Horneman, takes a look into the latest economic data. Megan discusses data on various indicators, including jobless claims, GDP, and Empire Manufacturing, with a focus on the significant Leading Economic Indicator Index. Highlighting the 20th consecutive month of negative readings, she explores the prolonged negativity in the index amid overall market optimism. Despite weak areas in the economy for November, such as the work week, jobless claims, and consumer confidence, Megan reflects on the historical context of the index, challenging expectations.  For questions or discussions, reach out to the podcast at Verdence dot com. 

Hello, this is Megan Horneman, the Chief Investment Officer at Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan to discuss some of the economic data we received this morning. So we got several different pieces of data jobless claims, which came in better than expected, the third reading on GDP, and then we also got the Empire Manufacturing, which was weaker than anticipated. But the one that really sticks out to us today was the Leading Economic Indicator Index, and this is typically a recession indicator, and what we saw is that we had the 20th consecutive month that this index has been negative. There are this index takes into consideration many different areas of the economy and some of the things that were weak for the month of November. The work week declined, jobless claims were weaker.

In the month of November, the ISM new orders, the interest rate spread, which is that inverted yield curve, and then consumer confidence. These all came in negative, so it dragged the index lower on a month over month basis. But what we have to focus on is that there has never been a time, since this Leading Indicator Index has been developed in the late 1950s, where we have had this many consecutive months of negative readings, and it has not coincided with the recession, so this is just one of those other things that just kind of make us go. Hmm, it doesn't make a ton of sense to us where there's so much optimism in the equity market, optimism about the economy, but this index has always been a precursor to a recession, especially when it's been negative for this many consecutive months. We'll take a look in next month and see how some of these materials, especially since the stock market's rebounded consumer confidence has rebounded a bit, but this is something that we just doesn't make a ton of sense to us as well.

As far as this coinciding with recession and the optimism we're seeing in the equity markets and economy. That's all we have today. We'll be back tomorrow, actually remotely, to talk about the PCE deflator, which is the Fed's preferred inflation indicator. That's all. If you have any questions, please feel free to reach out to podcast at Verdence dot com. Thank you.