Latest LEI Prediction Summary

Economy is cooling from its above-trend pace, but the labor market remains healthy, and a manufacturing recovery is underway

A brief and general review of the investing market by Edward Jones.

The Conference Board’s Leading Economic Index (LEI) — which provides an early indication of significant turning points in the business cycle as well as where the economy is heading in the near term — continued its downward trend, falling 0.3% to 101.1 in February. Weaker consumer expectations for business conditions and lower manufacturing new orders were the largest drivers of the decline, while higher weekly hours worked for manufacturing were the main positive contributor.

Importantly, LEI’s six-month change, while still negative, remained on its upward trend and does not signal a recession is imminent.² These readings indicate that, while the economy faces headwinds, it is slowing from an above-trend pace, and a recession is still not likely this year, in our view.

Initial jobless claims rose to 223,000 this past week, slightly below estimates of 224,000. Jobless claims have averaged about 227,000 over the past four weeks, modestly above the weekly average of 223,000 for 2024.³ While federal government layoffs will likely drive jobless claims higher in the months ahead, the labor market remains healthy, in our view. With the unemployment rate still low at 4.1% and job openings exceeding unemployment, wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy.

U.S. industrial production rose by 0.7% in February, ahead of expectations for a 0.3% increase.³ This was its highest level on record as businesses likely pulled forward purchases of inputs to get ahead of tariffs. Manufacturing output, which represents the majority of industrial production, increased by 0.9%, beating forecasts for a 0.3% rise and benefiting from a surge in automotive output.¹ While this pace of output growth is likely not sustainable, the direction is consistent with other data that reflect a recovery in manufacturing is underway. This should help provide broader support for the economy and labor market.

We expect lower interest rates and pro-growth policies, such as deregulation and tax cuts, to help drive an acceleration in the economy later this year. Diversification has been key this year as U.S. stocks have pulled back. Consider adding to bond and international stocks in portfolios that may have drifted below their intended allocations.

^{Sources:  1 U.S. Federal Reserve}, ^{2 The Conference Board}, ^{3 FactSet.}