Dive Brief:

• An index gauging the outlook for the U.S. economy declined in June for the 15th consecutive month, falling deeper into recession territory and extending the longest period of ominous signaling since the run-up to the 2007-2008 Great Recession, the Conference Board said Thursday.
• “Gloomier consumer expectations, weaker new orders, an increased number of initial claims for unemployment and reduction in housing construction” pushed down the Leading Economic Index, said Justyna Zabinska-La Monica, a senior manager for business cycle indicators at the Conference Board.
• “We forecast that the U.S. economy is likely to be in recession from Q3 2023 to Q1 2024,” she said in a statement. “Elevated prices, tighter monetary policy, harder-to-get credit and reduced government spending are poised to dampen economic growth further.”

Dive Insight:

The warning from the Conference Board’s index counters the unexpected message of strength from the labor market, consumer sentiment and other recent economic data.

Consumer sentiment in July rose for the second straight month, surging 13% compared with June and hitting the highest level since September 2021, according to a consumer survey by the University of Michigan. Consumer spending fuels about 70% of economic growth.

“The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” survey economists said.

Unemployment fell last month to 3.6% from 3.7% in May and the supply and demand for labor — thrown off kilter by pandemic restrictions — has come into better balance.

The quits rate, or the number of workers who left their jobs as a percent of total employment, declined in May to 2.6% from a pandemic high of 3% in April 2022, according to the Labor Department.

Overall, the economy likely grew 2.4% last quarter, an improvement from the July 3 estimate of 1.9%, according to the Federal Reserve Bank of Atlanta.

The Federal Reserve’s most aggressive fight against inflation is also showing signs of progress.

The core consumer price index excluding volatile food and energy increased 4.8% in June, the lowest annual rate in more than two years, the Labor Department said last week.

Adjusting to easing price pressures and other good news, economists in recent weeks have trimmed the odds of recession.

Goldman Sachs economists on Monday reduced the probability of a downturn during the next 12 months to 20% from the 25% probability they set last month. In March, after three bank failures, they saw 35% odds that the economy will contract.

“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” Goldman Sachs Chief Economist Jan Hatzius said in a report.

Economic growth will probably slow during the next few quarters, weighed down by reduced bank lending, the resumption of student debt payments and lower inflation-adjusted growth in disposable personal income growth, Hatzius said.

“But the easing in financial conditions, the rebound in the housing market and the ongoing boom in factory building all suggest that the U.S. economy will continue to grow, albeit at a below-trend pace,” he said.

Some economists are sticking to their recession predictions.

Fed economists last month affirmed their forecast that a slight downturn will begin later this year.

Fannie Mae economists said Wednesday that a mild recession will probably begin in the fourth quarter or the first quarter of next year, while noting “that the probability of a ‘soft landing’ may have increased of late.”

Fannie Mae downgraded its projection for economic growth next year to minus 0.1% from 0.8% in June. More immediately, the economy will shrink 0.4% during the fourth quarter and 1.3% during the first quarter of 2024, the mortgage finance company said.