In its latest release, the Conference Board's Leading Economic Index (LEI) has once again predicted a recession for the near future, this time specifically for early 2024. The LEI is regarded as a reliable indicator for turning points in the business cycle and has successfully predicted previous recessions such as the 2001 recession and the Great Recession.

The LEI for October 2023, revealed in a recent report, suggests that a combination of elevated inflation, high interest rates, and contracting consumer spending could lead the US economy into a very short recession. The report highlights that the US LEI trajectory remained negative, with both the six-month and twelve-month growth rates remaining in negative territory.

Several factors contribute to the LEI's latest recession prediction. Deteriorating consumer expectations for business conditions, a lower ISM® Index of New Orders, falling equities, and tighter credit conditions were cited as significant drivers of the recent decline in the index.

Interestingly, this is not the first time that the LEI has forecasted a recession. Previous reports from the LEI, dating back to August 2022, indicated a recession potentially starting in late 2022 or early 2023. Subsequent predictions moved the projected recession across various timeframes, ultimately settling on a recession starting in 2024.

However, despite these recurring recession predictions, none of the projected recessions since late 2022 have yet materialized. Instead, the US economy has experienced robust growth, with "real" GDP (adjusted for inflation) registering a noteworthy annualized rate of 4.9% in the third quarter of 2023, following solid increases in the previous two quarters.

Experts remain intrigued by the LEI's consistent recession forecasts, considering the growing divergence between the predictions and the actual economic performance. The discrepancy has sparked curiosity about why the predictive models that previously worked well in normal economic conditions are failing to accurately capture the dynamics of the current volatile and unpredictable economy.

Going forward, the possibility of a future business-cycle recession remains, as it is an inherent part of the economic cycle. The timing, however, remains uncertain, leaving economists to ponder the reasons behind the continued discrepancy in recession predictions. Further analysis will dive into the factors contributing to the inaccuracies of these forecasting models in the ever-evolving economic landscape.

As the economy continues to defy predictions, economists and analysts will closely monitor the indicators provided by the LEI in an attempt to better understand the dynamics of the business cycle and its potential impact on the US economy.