The tug-of-war continues between the Leading Economic Index (LEI), which measures (via ten economic inputs) what our economic backdrop will be in six to nine months (September 2023 – December 2023) and our Gross Domestic Product (GDP), all of the goods and services we produce as a country.
As for the LEI, the dataflow remains negative. Per the Conference Board, the creator and tracker of the LEI data, “the rate of the decline moderated slightly in January 2023”.
I will let you decide what to think about that comment as you observe the recent dataflow for LEI below.
2022 LEI
January -.30%
February +.30%
March +.30%
April -.30% --------Begin “Death Rattle” here
May -.40%
June -.80%
July -.50%
August -.30%
September -.40%
October -.80%
November -1.10%
December -1.00%
2023 LEI
January -.30%
The LEI is now down -3.60% over the last six-month period between July 2022 and January 2023 – a steeper rate of decline than its -2.40% contraction over the previous six-month period (January – July 2022).
Per the Conference Board, a decline of this magnitude over a six-month period has “always” foreshadowed a recession.
But don’t tell that to our Gross Domestic Product (GDP). The 4Q2022 “second estimate” of GDP released on February 23, 2023 was a +2.70%. This is less than the 3Q2022 GDP of +3.20%, but still expanding and growing.
How about 1Q23 GDP? A quick check in on the Atlanta Federal Reserve GDPNow model reports the following for 1Q2023 as of 3/1/2023:
Latest estimate: 2.3 percent — March 1, 2023
Okay, the GDP trend is as follows:
1Q2022 -1.50%
2Q2022 -.60% ----- two contracting quarters is officially a recession. If over, a very short recession!
3Q2022 +3.20%
4Q2022 +2.70%
1Q2023 GDPNow estimate: +2.30%
An LEI strongly predicting a recession in 2023 offset by an expanding economy, albeit at a slower pace of growth, has “never” happened before.
For now, it appears the tug-of-war is toward the side of economic expansion. However, the Federal Reserve is likely to increase interest rates at least another +.75% by fall of 2023.
It is this yet to be played, but it is the Federal Reserve interest rate increase “wild card” that could cause the GDP to reduce, thus making the LEI projection a potential reality.
This type of dataflow is just one reason we continue to have higher than normal cash and cash-like positions in our WSG families’ asset allocations.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email or stop by the office and say Hi.
Respectfully,
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.