Several skeptics responded to our piece last week looking at the yield curve as a leading indicator (see Yield Curve Not Suggesting Imminent Market Peak, Recession) by saying that the yield curve is no longer reliable because of the Fed’s distortions on the market.
This was essentially the same view given by Bill Gross in his July newsletter where he wrote: ‘the reliance on historical models in an era of extraordinary monetary policy should suggest caution.’ Gross highlighted the yield curve as a specific example.
Assuming the yield curve has lost its predictability, what is the message coming from other leading indicators?
One we cite regularly on our site and podcast is the Conference Board’s US Leading Economic Index (LEI), which has averaged a 6.5 month advance warning prior to recessions since 1965. It is a composite of ten different indicators and, as they write on their website, is ‘designed to signal peaks and troughs in the business cycle.’ It is currently at a 4% annual growth rate (positive growth in green, negative in red) and, in agreement with the yield curve, is not warning of a major market peak or recession in the US (click any chart to enlarge).
This post was published at FinancialSense on 07/24/2017.