Predicting the Future

Wall Street markets move on daily predictions of ‘experts’, who often make magical prognostications in the media based on their chosen economic data points, their self-serving correlations and conclusions of causations, all consistent with their perceptions of the ever-changing landscape of global economic activities.

The originators of economic statistics generating these forecasts are often institutions, the Federal Reserve, money managers, research firms, journalists, and economists - some quite honorable and noteworthy and some merely opportunistic. And most claim to have authoritative positions upon which to espouse credible narratives, but only very few are sound and trustworthy with their opinions. The issue is that the media in general often seem to be interpreting current events and forecasts through their own overly dramatic, politicized, biased, and self-serving negative lenses rather than merely observing and reporting information from credible authoritative sources. Too often the pressure to grab the public’s attention outweighs dispassionate, unbiased analysis and reporting - witness Washington politics and various outcome interpretations of government programs and foreign and domestic defense related expenditures and repetition of social narratives and memes  - and therefore markets move.

 Objectivity-challenged views of ‘experts’ strategically placed on popular financial channels to sound off about today’s hot subjects often conveniently validates the views of the media source, which influences Wall Street financial markets and generates more drama in a seemingly endless feedback loop of news-generating-news-generating-market movements that generates even more news. This unfortunate ongoing drama trend sometimes stampedes investors into making decisions based on media-exaggerated and/or inaccurate reporting to the public.

Fortunately, credible analysis of economic data is available from various authoritative non-governmental sources — information that does genuinely affect economic policymaking and therefore, legitimately also affects global markets. One such respected authority is The Conference Board, a non-advocacy, not-for-profit organization that defines itself as “a global, independent business membership and research association working in the public interest…”

Among the various indices of the Conference Board is the Leading Economic Index® (LEI) that is an example of the kind of information researchers rely on — a concise algorithm designed to crystallize mountains of data on past and present economic factors, which can, within limits, foretell future economic conditions. The LEI is a composite of a number of different metrics that, because they cover so many different economic factors, serve better as a credible predictor when integrated as a group rather than as isolated data points.

Since economics, as a social science, deals with unpredictable human behavior, it may be self-limiting: predictions about market movements affect market movements in a feedback loop. This is especially true when political ideology, rather than historical empirical evidence, guides monetary policy (Federal Reserve: maximum employment and stable prices) and fiscal policy (Congress: budget matters, including entitlement and social programs, defense spending and tax policy). Even a factual ten-component, non-partisan LEI index cannot be expected to be a perfect soothsayer when the underlying variables are based on human hopes and fears that are driven by emotional politics, a drama driven media, and an unpredictable Federal Reserve.

The Leading Economic Index provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term. What does the current LEI report say about our economic future, as of November 20, 2023?

The Conference Board Leading Economic Index® (LEI) for the U.S. fell by 0.8 percent in October 2023 to 103.9 (2016=100), following a decline of 0.7 percent in September. The LEI contracted by 3.3 percent over the six-month period between April and October 2023, a smaller decrease than its 4.5 percent contraction over the previous six months (October 2022 to April 2023).

“The US LEI trajectory remained negative, and its six- and twelve-month growth rates also held in negative territory in October,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.  “Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline. After a pause in September, the LEI resumed signaling recession in the near term. The Conference Board expects elevated inflation, high interest rates, and contracting consumer spending—due to depleting pandemic saving and mandatory student loan repayments—to tip the US economy into a very short recession. We forecast that real GDP will expand by just 0.8 percent in 2024.”

Copyright © Mark Wendell 2023. All rights reserved.