The well-known market commentator John Hussman recently highlighted some work from Lance Roberts of StreeTalkLive, who presented a nice chart of the ratio of coincident to lagging indicators from the US Conference Board. This ratio can be used as a leading indicator of recessions and they note that each time the ratio has fallen to current levels, the economy has either been in or close to a recession (see chart below and link).
From Lance Roberts:
This past week the monthly release of the Leading Economic Indicators showed that the leading-to-lagging indicator ratio dropped to 89.5 which matches the lowest level in more than 2 1/2 years. Historically when the leading-to-lagging ratio has fallen below 91 the economy was either in, or about to be in, a recession.
While it is not popular within the media, or blogosphere, to point out economic concerns but rather why markets are going to engage in a continued bull market – the simple reality is that by the time the NBER announces an official recession it will be far to late for investors to minimize the damage. The leading-to-lagging ratio continues to point to an economy that has very little, if any, actual momentum which leaves it very susceptible to exogenous shocks.
Here’s the chart:
[credit provider=”Street Talk Live” url=”http://www.streettalklive.com/daily-x-change/1342-chart-of-the-day-lei-leading-to-lagging-ratio.html”]