Leading index for U.S. economy falls for sixth straight month, signaling slower growth ahead

By Greg Robb

The index remains 'close to recessionary levels'

The numbers: The leading indicators for the U.S. economy sank 0.2% in August, the privately run Conference Board said Thursday. That is the sixth straight monthly decline. The index fell 0.6% in July.

The leading index is a composite of 10 forward-looking components designed to show whether the economy is in danger of falling into recession and where the economy is headed in the near term.

Economists polled by the Wall Street Journal had forecast a 0.3% drop in the index in August.

Key details: The August index was not as weak as July's because building permits and manufacturing hours turned positive.

The drivers of the weakness remained the same - weak factory orders and the interest-rate spread between 10-year Treasury yields and the federal-funds rate, said Eugenio Aleman, chief economist at Raymond James.

Big picture: Recession fears have picked up over the summer as the labor market has stumbled.

The Federal Reserve's most recent Beige Book, a survey of conditions in the economy from the central bank's business contacts, showed that two-thirds of Fed districts reported flat or declining activity.

Economists point to the most recent economic data, including retail sales for September, as easing concerns about a downturn.

The Fed cut its policy interest rate by half a percentage point on Wednesday, in part to ward off a dramatic slowdown in economic activity.

The Atlanta Fed's GDPNow tracker expects U.S. growth to expand at a solid 2.9% rate in the third quarter, very close to the 3% rate in the July-September quarter.

What the Conference Board said: The economy will lose momentum in the second half of this year as higher prices, elevated interest rates and mounting debt erode domestic demand, said Justyna Zabinska-La Monica, senior manager of business-cycle indicators at the Conference Board.

The Fed's projection of another 50 more basis points in rate reductions this year should lower borrowing costs and support stronger activity next year, she added.

Looking ahead: "The leading index remains close to recessionary levels. Our own internal recession models indicate that while risks are rising, they remain significantly below the historical threshold that would justify considering a recession in our baseline," said Matthew Martin, senior U.S. economist at Oxford Economics.

Market reaction: Stocks SPX DJIA were higher in morning trading, while the 10-year Treasury yield BX:TMUBMUSD10Yrose to 3.740%.

-Greg Robb

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09-19-24 1253ET

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