The leading economic index declined 0.8% in October and fell for the 19th month in a row, but the U.S. economy doesn’t appear any closer to a recession than when the losing streak began. Economists polled by the Wall Street Journal had forecast a 0.7% drop in the leading index, a gauge of 10 indicators designed to show whether the economy is getting better or worse. The last time the index fell so many times in a row was during the Great Recession from the end of 2007 through 2009.
What’s kept the economy growing is a steady increase in consumer spending at a time of extremely low unemployment. That’s offset the negative effects of high inflation and rising interest rates. The U.S. grew at a sharp 4.9% annual pace in the third quarter — not a sign of an impending breakdown in the economy. But the economy will be hard pressed to maintain its momentum with interest rates at the highest level in years. The Federal Reserve has raised a key short-term interest rate to squelch inflation, but higher borrowing costs always end up slowing the economy, if not triggering an outright recession.
Looking ahead: “The Conference Board expects elevated inflation, high interest rates, and contracting consumer spending — due to depleting pandemic saving and mandatory student loan repayments — to tip the U.S. economy into a very short recession,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Board.
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX rose in Monday trading.