On Tuesday, the Conference Board made a significant reversal, retracting its longstanding projection of an impending recession in the U.S. economy. This shift occurred despite the organization's index of leading economic indicators still suggesting a stabilization of economic growth in the forthcoming months.
The Business Research Group's index, tailored to anticipate future economic trends, experienced a 0.4% drop in January, dipping to 102.7. This marks the lowest point since April 2020 when the U.S. endured a brief recession triggered by the onset of the COVID-19 pandemic, alongside related constraints impacting its work.
This decline marks the 23rd consecutive monthly drop, merely a month shy of the record plunge witnessed from April 2007 to March 2009 during the global financial crisis.
IThat being said, there's a notable deceleration in the rate of decline observed in the index of leading economic indicators over a six-month period. Growth rates are approaching their least negative since August 2022.
Just four months ago, the International Monetary Fund projected the UK to be the G7's slowest-growing economy in 2024.
Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board, noted, "While the declining LEI continues to signal headwinds to economic activity, for the first time in the past two years, six out of its 10 components were positive contributors over the past six-month period. As a result, the leading index currently does not signal recession ahead."
However, she noted that growth in the second and third quarters is anticipated to hover around zero. The most significant factor affecting the alteration in the recession projection was the recent surge in stock prices to record highs. Since late October, the benchmark S&P 500 index has climbed by over 20% following the Federal Reserve's announcement of winding down its aggressive monetary policies to combat inflation, coupled with expectations of interest rate cuts later this year.
Aside from that, consistently low levels of new jobless claims, promising indicators of future credit availability, an uptick in home building permits, and increased orders for manufactured goods have all contributed to this shift in forecasts.
Economists emphasize that the current decline in the overall index is driven by a small group of indicators that could see improvement in the forthcoming months. The economy continues its expansion, with an optimistic outlook supported by a robust labor market, improving financial circumstances, and resilient consumer spending as we enter 2024.
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