Economist and financial analyst Nick Gerli shared his concerns about the US economy in a series of tweets, warning that the Conference Board’s Leading Economic Indicators (LEI) have plunged further into recession territory. He notes that LEI contraction has preceded big layoffs by approximately 12 months in past recessions, suggesting a significant spike in the unemployment rate by summer 2023.
Gerli points out that the LEI has accurately predicted every recession since the 1970s by tracking changes in hours worked, building permits, credit conditions, manufacturing orders, and initial jobless claims. Despite the growing signs of an economic downturn, many experts are forecasting a “no landing” scenario where the US avoids a recession and large job losses.
Gerli argues that this bullish outlook is based on a “this time is different” mentality, which assumes that the unprecedented inflation, interest rates, and debt levels won’t lead to a recession. However, he highlights that in the initial stages of past recessions, such as in 1973, 1980, 1989, 2000, and 2007, similar “soft landing” arguments were made by optimistic experts, only to be proven wrong.
As the US economy faces increasing uncertainty, Gerli’s analysis serves as a reminder to prepare for the potential impact of an economic downturn and to closely monitor the leading indicators that have successfully predicted recessions in the past.