Weekly Investment Update
Amid Bad Data Releases, Leading Economists Predict No Recession
Published Friday, July 22, 2022 at: 8:43 PM EDT
Housing slumped again and the Leading Economic Indicator Index plunged for a third straight month, but the consensus forecast of leading economists is for no recession.
The economy remains on the edge of a recession but the stock market this past week acted like the worst of the bear market may be over.
Housing starts dropped for a second straight month. However, permits to start construction of a new single-family home are “holding up,” according to independent economist Fritz Meyer,
Housing starts for the many years have remained much lower than the projected rate of 1.6 to 1.8 million consistent with long-term demographics and the replacement of the existing housing stock, according to Jonathan Spader, Daniel McCue, Chris Herbert of the Joint Center for Housing Studies at Harvard University.
The LEI plunged before every recession in modern financial history except for the Covid-19 recession. In the last three months, the LEI dropped -0.8% in June, -0.6% in May and -0.3% in April.
The three-month plunge prompted an about-face in the outlook for the U.S. from The Conference Board, a big-business group, that has calculated the LEI’s 10 sub-component indexes monthly for many decades.
Only last month, The Conference Board economics team predicted +2.3% US GDP growth in 2022. In a turnabout, “US recession around the end of this year and early next is now likely,” said Ataman Ozyildirim, who leads the economics team at The Conference Board, said in a July 21 forecast :
The Conference Board Leading Economic Index® (LEI) components:
1) average weekly hours worked, manufacturing
2) average weekly initial unemployment claims
3) manufacturers’ new orders – consumer goods and materials
4) ISM index of new orders
5) manufacturers’ new orders, nondefense capital goods
6) building permits, new private housing units
7) stock prices, S&P 500
8) Leading Credit Index™
9) interest rate spread 10-year Treasury minus fed funds
10) index of consumer expectations.
The Wall Street Journal’s quarterly survey of 60 economists projects that the economy will continue to grow for the five quarters through September 2023. They do not expect a recession.
The Standard & Poor’s 500 stock index closed this Friday at 3,961.63. The index lost -0.93% from Thursday but shot +2.52% higher from last week. The S&P 500 index is up +55.62% from the March 23, 2020, bear market low. On June 13, 2022, the S&P 500 dropped more than 20% from its January 3rd all-time high. Down about -17% from its high on a price-only basis, the bear market may have bottomed. No one can predict the next near-term market surge or plunge, but the stock market is a leading economic indicator.
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