Recession: To Be Or Not To Be?

The latest batch of leading economic indicators suggests that several coincident economic indicators might soon begin to fall. So we now place the odds of a mild recession at 55% (up from 45%), making it our base-case outlook.Let’s review what we have so far for June’s Index of Leading Economic Indicators (LEI) and May's Index of Coincident Economic Indicators (CEI):

(1) While it is widely believed that the LEI tends to peak three consecutive months prior to recessions, the average lead time between the LEI peak and the CEI peak has been 12 months during the previous eight business cycles, with a range of 2-22 months. The CEI cycle has coincided with both the official peaks and troughs of the previous eight business cycles, as determined by the Dating Committee of the National Bureau of Economic Research.The CEI tracks the growth rate of real GDP, both on a y/y basis, very closely. The former was up 3.0% during May, while the latter was up 3.5% during Q1.