US leading indicators slip in May, triggering recession signal, Conference Board says

The Conference Board's Leading Economic Index fell 0.1% in May, marking the sixth consecutive monthly decline and triggering a recession signal due to factors including consumer pessimism and weak manufacturing orders. Despite a rebound in stock prices, the index's six-month growth rate turned negative, prompting The Conference Board to forecast a significant slowdown in economic growth in 2025, with real GDP growth projected at 1.6% this year and potential deceleration in 2026 due to persistent tariff effects; however, the board does not anticipate an actual recession.

Analysis

The Conference Board's Leading Economic Index (LEI) declined by 0.1% in May, its sixth consecutive monthly fall, which has officially triggered the organization's recession signal. This follows a significant downward revision for April to a 1.4% drop, the largest since the start of the COVID-19 pandemic. The weakness is broad-based, driven by deteriorating consumer sentiment, weak new manufacturing orders, an increase in jobless claims, and a decline in building permits, with a rebound in stock prices being the only notable positive contributor. Despite the formal recession signal from the index, the Conference Board's own forecast is for a significant economic slowdown in 2025, not a contraction, with real GDP projected to grow 1.6% in the current year. It is crucial to note the LEI's recent history of unreliability, as it previously signaled a recession during the post-pandemic inflation wave that never materialized, suggesting this latest signal should be viewed with caution. Furthermore, persistent tariff effects are highlighted as a potential headwind that could decelerate growth into 2026.

Key Decisions for Investors

• Given the formal recession signal from the LEI, investors should consider a more defensive portfolio allocation, potentially reducing exposure to highly cyclical sectors sensitive to consumer spending and manufacturing.
• Monitor upcoming high-frequency data, particularly consumer sentiment and jobless claims, to determine if the economy is tracking toward the Conference Board's slowdown forecast or the LEI's more pessimistic recession signal.
• Considering the LEI's recent false signal, it may be prudent to use this data to hedge cyclical exposure rather than undertaking a complete de-risking of portfolios.
• Factor in the stated risk of persistent tariff effects, which could negatively impact companies with significant global supply chains or international trade exposure through 2026.