What is the LEI Index, Which Has Been Declining for 17 Months and Signals a Recession?
According to JP Morgan Chief Global Strategist David Kelly, why isn’t a recession coming?
➡️ In its simplest form, an index means a basket.
This basket contains 10 data points. Historically, when these data points collectively reached a certain level, the economy was dragged into a recession.
- Average weekly hours worked in manufacturing
- Average weekly initial claims for unemployment insurance
- Manufacturers’ new orders for consumer goods and materials
- ISM® New Orders Index
- Manufacturers’ new orders for non-defense capital goods excluding aircraft
- Building permits for new private housing
- Stock prices
- Leading Credit Index
- Interest rate spread
- Average consumer expectations for business conditions
⚠️ The LEI has been negative for the last 17 months!
✅ In every period it signaled a recession (below -4), there was a recession (highlighted in gray areas).
✅ Despite the LEI Index, Why Isn’t There a Recession?
According to JP Morgan Chief Global Strategist David Kelly, there’s a reason: consumer expectations.
Consumer expectations have caused 45% of the decline in the index since April 2022. It’s a fact that political rhetoric post-COVID has negatively impacted consumer expectations. This makes the index appear lower than it actually is.
However, the fact that the data continues to come in negative diminishes this effect with each passing day.
