Negative LEI Signals Possible Recession, Historical Data Suggests Resilient Economy

Based on the historical data presented, the Conference Board Leading Economic Index (LEI) serves as a reliable forecasting tool with an impeccable track record spanning 65 years. Recent developments indicate that this indicator has turned negative once again, following a modest decrease of 0.3% in March 2024 from the previous month. This trend is significant because the LEI has predicted economic recessions by around seven months in advance, with a year-over-year decline of 4% or greater consistently resulting in the US economy entering a recessionary period. The current state of the LEI, with a year-over-year drop-off exceeding 5%, should serve as a warning sign for the stock market, particularly as historical evidence suggests that stock market corrections and crashes are eventually recouped. While the exact timing and severity of such events remain uncertain, it is essential to adopt a long-term investment approach, as the majority of economic expansions over the past 78 years have persisted for more than a year, with two periods of growth lasting over a decade. It is crucial to remember that while recessions can be alarming, they are inevitably part of the economic cycle and do not last for an extended duration. Therefore, maintaining a patient and perspective-driven mindset can make these episodes easier to handle.