US economic outlook remains dark as major forecast sees sixth straight drop
US economic outlook remains dark as major forecast sees sixth straight drop
Story by Hugh Cameron
• 3d •
3 min read
The United States' economic outlook continues to deteriorate despite some positive developments, according to the Conference Board's latest Leading Economic Index (LEI).
On Friday, the D.C. think tank announced that the index had declined a further 0.1 percent in May. While this is less steep than the 1.4-percent drop recorded in April, it marks the sixth consecutive monthly decline in the LEI, which has contracted by 2.7 percent over this period.
Why It MattersThe LEI is a widely consulted indicator when assessing the health of the U.S. economy, and significant declines have in the past been correlated with periods of significant economic downturn.
Recession fears have tempered in recent weeks, owing to a pause in the U.S.-China trade dispute and a recovery in the stock market. However, as noted in the Federal Reserve's recent decision to hold off on interest rate cuts, the effects of President Donald Trump's tariffs could prove a drag on future growth, and Americans still anticipated a prolonged battle with inflation.
What To KnowThe only marginal decline in the LEI was attributed to an outsize drop in April, during which businesses, consumers and investors reacted with unease to the announcement of Trump's "Liberation Day" tariffs.
Major stock indexes have rebounded since this shock, with all now trading above or near their levels prior to April 2. However, the Conference Board noted that this "strong rebound" was not sufficient to offset the other metrics incorporated into the LEI, such as low consumer expectations for business conditions and persistently weak demand for manufactured goods.
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Last week, the Federal Reserve decided to once again hold off on interest rate cuts, keeping these at 4.25 to 4.5 percent. In its announcement, the Federal Open Market Committee—the branch responsible for setting monetary policy—stated that it would continue to assess risks and work toward its 2 percent inflation target.
At a press conference following the announcement, Fed Chair Jerome Powell said that the U.S. economy was "in solid shape," but warned of "very high uncertainty" due to the impact of tariffs.
"Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs," he said, "because someone has to pay for the tariffs."
What People Are SayingJustyna Zabinska-La Monica, senior manager of Business Cycle Indicators at The Conference Board, said: "The LEI for the US fell again in May, but only marginally. The recovery of stock prices after the April drop was the main positive contributor to the Index. However, consumers' pessimism, persistently weak new orders in manufacturing, a second consecutive month of rising initial claims for unemployment insurance, and a decline in housing permits weighed on the Index, leading to May's overall decline.
"With the substantial negatively revised drop in April and the further downtick in May, the six-month growth rate of the Index has become more negative, triggering the recession signal."
What Happens NextThe Conference Board warned that the six consecutive drops have now pushed the index into the range that typically signals an imminent recession. However, it has held off on this prediction and currently anticipates only a "significant slowdown in economic growth" this year.
Meanwhile, Powell said that the Federal Reserve is "well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance." |
