The RecessionALERT monthly U.S Leading Growth Index (USMLI) is an index that attempts to capture future (6-9 months) U.S economic growth. The index has been constructed since 1960, but this report only displays data from 2000 onwards to capture the last two recessions. The USMLI consists of 10 sub-components that are in turn constructed from over 100 discreet monthly and weekly leading time-series data that capture the essence of U.S future economic growth from varying aspects, namely Manufacturing, Inventories & Sales, the Housing, Lumber & Construction markets, Freight shipments & revenues, broad Employment, the Stock Market & associated margin debt, the Treasury & Corporate Bond markets, the broad Credit Markets, various Sentiment surveys and percentage of 50 individual state leading indexes.
All data-series are standardized (mean zero, variance 1) and then constructed to display from -100 to +100. Each chart below represents growth and thus when the data drops below zero the implication is that the data in question is flagging recession ahead. To track the number of individual indicators of the USMLI that are flagging recession, we also construct a Diffusion Index which rises every time a discrete time-series component drops below zero. The Diffusion Index represents, from 0 to 1, the percentage of components flagging recession. When the Diffusion equals or exceeds 0.6 (more than 60% of the components are in recession) then you have a very high degree of certainty that economic recession is 6-9 months away. The USMLI posted a modest rise in November, after 5 months of declines, pointing to an improved outlook for economic growth.
For now, the danger areas appear to be the all-business Inventory-to-Sales composite, the Treasuries & Corporate Bonds composite and the Sentiment composite. The Freight revenues & shipments composite was looking uncomfortably vulnerable in the past few months but appears to be showing signs of bottoming out, whilst the Housing & Construction composite continues to show signs of a slowdown in growth.