The analysis below is pulled from last Friday’s Bespoke Report newsletter.  To read the full report, start a two-week free trial to any of our three membership levels.

The Leading Indicators report released this past Thursday reinforced signals of a strong US economy.  From this release, there do not appear to be signs of a looming recession.  Below we show the ratio of Leading Indicators to Coincident Indicators over the past 60 years.  Historically, this ratio has been a very good leading indicator of recessions.  Typically, but not always, when the ratio peaks then begins to fall, a recession is around the corner.  This does not mean that a recession is necessarily in the near future.  In fact, the ratio usually peaks in excess of a year before a recession and typically rolls over by the time the recession starts.  Last Thursday’s reading showed no signs of a reversal; rising to a cycle high of 1.0662.

Another way of looking at this indicator is on a year-over-year basis.  This tells much of the same story.  Months or even years before a recession begins, the reading peaks then begins to decline.  Right before a recession, it has never been on the rise.

August’s report came in at 6.41%, which is the second-highest level since July 2014.  Since 1980, the earliest a recession came following a period where the y/y change in leading indicators was above 5% was 24 months.  The average amount of time that elapsed from the last 5% or more reading to the earliest stages of a recession was 35 months.  No matter which way you cut it, the Leading Indicators do not show signs of a slowing economy.

The analysis above is pulled from last Friday’s Bespoke Report newsletter.  To read the full report, start a two-week free trial to any of our three membership levels.

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