An economic index is flashing a recession warning sign, but it may be a ‘mixed signal.’ Here’s what you need to know

A monthly gauge of what could lie ahead for the U.S. economy is flashing a recession warning sign.

The Leading Economic Index dipped by 0.4% in September from August and is down 2.8% since March, according to the Conference Board, an independent group that publishes the index. The latest reading is below a threshold that the organization considers a recession signal.

“Its persistent downward trajectory in recent months suggests a recession is increasingly likely before year-end,” said Ataman Ozyildirim, senior director of economics at the Conference Board.

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Yet at this point, some experts say, the index’s latest reading is not indicative that a recession is imminent.

“The question is whether it is going to continue to deteriorate,” said Brian Bethune, an economist and professor at Boston College. “It’s a mixed signal, I’d say.”

A recession is generally defined as a broad-based, significant decline in economic activity that lasts for more than a few months, according to the National Bureau of Economic Statistics, a non-government agency that identifies recessions.

While the economy did contract in the first two quarters of 2022 by 1.6% and 0.6%, respectively, other factors that characterize a recession — such as widespread jobless claims and a broad drop in personal wages and salaries — have not materialized.

For instance, while the average weekly hours worked in manufacturing has trended downward on a monthly basis since February when it was 41.6, September’s reading wasn’t too far below that at 41.1, according to the U.S. Bureau of Labor Statistics.

“A decline of a half-hour per week is not significant,” Bethune said.

Initial jobless claims — another data point used in the index — also do not point to the kind of broad-based job loss that comes with a recession. The most recent data shows 214,000 initial claims were filed in the week ended Oct. 20, which is a reduction from 226,000 in the previous week.

That could change, of course.

The Federal Reserve is expected to continue pushing up interest rates in an effort to bring down persisting high inflation. The general idea is that by making the cost of borrowing money more expensive, spending is reduced, which in turn will slow consumer demand and ease inflationary pressure.

Of course, the index’s 10 components will change before its next reading. For instance, another data point used — the Consumer Confidence Index, also published by the Conference Board — already is now lower than when the Leading Economic Index was published Oct. 20. At that point, consumer confidence had increased for two months.