Leading Recession Warning TRIGGERS

The leading economic index is an index

that tries to forecast, hey, are we

going to go into recession or not? And

usually it does a good job at leading

recession. You can see here in the

dotcom bubble, it led recession, which

is the blue line, led recession in the

uh 2008 great financial crisis. And as

you can see, it's plummeting right now,

but it's been plummeting since 2022.

So the question is, how much lower is

this than historic levels? Well, it's

lower than the plateau in 2015, and

we're now falling below the peak of

2006. So, technically, uh, we've got

some room to go to get lower here.

Technically, if we wanted to actually

see recessionary levels, we might get

from this 98 level where we sit now all

the way down to 80 and then we're

probably in the midst of a recession.

But the makeup of the leading index is

what's most concerning to me because

take a look at what I've just

highlighted here as this data just came

out 3 minutes ago. First of all here

you'll see this person says for a second

month in a row the stock price rally was

the main support of the LEI but this was

not enough to offset very low consumer

expectations weak new orders and

manufacturing and the third consecutive

month of initial unemployment claims.

Okay. So, why does that matter? Well, it

matters because of the components of

LEI. Here's the components chart. Now,

this is what you should really have uh

in the back of your mind or or honestly

really at this point in the front of

your mind when it comes to understanding

what has this negative leading indicator

not falling off a cliff. Okay. So in

other words, without which component

would this actually be plummeting right

now? Uh in other words, even though we

are at the lowest level we've seen in

about 11 years on the leading indicator

and we're roughly aligned with the 2005

top, this line would actually be

nosediving fast right now if it weren't

for one thing. And that one thing is the

S&P 500 going up. I hate to say it,

stock market going up doesn't actually

mean that the underlying economy is

going up. In fact, often the economy and

the stock market can be at total odds

where when the economy is faltering, the

stock market's at all-time highs or when

the stock market is depressed and low,

you're actually setting up for a boom in

the economy. So, what's fascinating here

is the details aren't great. You've got

negative contributions from average

weekly initial claims. You've got

basically no contribution from new

orders from manufacturers. Uh, and this

is this is data as of today. New

manufacturers on non-defensive capital

goods flat. Average weekly hours flat.

Building permits basically flat. New

orders from the ISM index negative.

consumer expectations negative, interest

rates not really contributing as well,

and the stock market really being the

one thing that's propping up this index.

So, if it weren't for the stock market,

this would be falling even faster. Let's

listen to some more of their commentary.

In addition to the LEI's 6-month growth

rate weakening,

while the diffusion index over the past

6 months remained below 50, triggering a

recession signal for the third

consecutive month. So now we've got

three months in a row of the leading

indicator from the conference board

which which could be fugazi you know

maybe this time's different maybe maybe

it doesn't matter and remember they have

two things they have a coincident

indicator uh or index which is the black

line like how are things right now and

it's generally up and to the right and

then you have your leading indicator

which is typically your signal of a

recession uh to come or coming. Uh but

this is interesting because it shows you

that you had um a flat read in May, a

negative read last month and a negative

read uh now. So let's see what we have

here. We've got u the diffusion index

over the past six months rel remained

below 50 triggering the recession signal

for a third consecutive month. At this

point though, the conference board does

not forecast a recession, which is good.

Although economic growth is expected to

slow substantially in 25 to 24. So,

interestingly, even though their signal

is falling and it's propped up by the

stock market, which could obviously flip

rapidly, it's not enough for them to say

eh it's recessionary. So, it's just

enough for them to say that they think

GDP will grow slowly with the impact of

tariffs being more apparent in the

second half as consumer spending slows

with higher prices. Maybe. I mean, we'll

see. Lutnik seems to be cheering a lot

of trade deals coming. We'll see. A

plethora of trade deals coming. At least

that's what you're seeing right now. If

you haven't seen it yet, uh Lutnik uh he

really gave us some good shilling on uh

the uh Face the Nation uh video. We

could take a brief look at it. It's not

worth watching all of it, but take a

take a little listen to some of it and

we'll we'll skip around and we'll go

back to the leading index and look at

some more of it.

>> Too much focus public

>> the trade deficit. This will go a long

way to fixing the trade deficit. And

that's gotten these countries to the

table and they're going to open their

markets or they're going to pay the

tariff. And if they open their markets,

the opportunity for Americans to export,

to grow their business, farmers,

ranchers, fishermen, this is going to be

the next two weeks are going to be weeks

for the record books. President Trump is

going to deliver for the American

people. next week.

>> So, classic kind of Trumpy and chilling

so far, which is fine. Somebody say it's

been flashing recession for the last 37.

No, it actually hasn't been. It's been

flashing recession for the last three

months. It's been declining or some

would argue normalizing for the last 37

months. That's a big difference.

>> We have a plan called USMCA, US Mexico,

Canada agreement. Virtually 75% of all

goods coming from Mexico and Canada

already come in tariff-free. The

president said, "Look, unless you stop

this fentanyl and close the border,

we're just going to keep tariffs on the

other 25%." And that's what he has on.

So don't be confused about it. The

president understands that we need to

open the markets. Canada is not open to

us. They need to open their market.

Unless they're willing to open their

market, they're going to pay a tariff.

That's a simple message the president

has. It's fair trade. It's reciprocal

trade. Why should we have a cut? See if

we get a harder question.

Is that set in stone or is it going to

go to like 15 or 20%. There's going to

be a tariff here. There's already this

baseline 10% tariff that we are seeing

from the administration. Um is that set

in stone or is it going to go to like 15

or 20%.

>> Let me go up.

Well, I think what you've got is you

should assume that the small countries,

you know, the Latin American countries,

the Caribbean countries, many countries

in Africa, they will have a baseline

tariff of 10%. And then the bigger

economies will either open themselves up

or they'll pay a fair tariff to America

for not opening them.

>> This is an interesting point of view

from Lutnik. It's basically saying, hey,

the smaller countries that don't really

matter to our trade, oh, we'll just give

them 10%. That's the cost of doing

business with America. But the bigger

countries, we want more because that's

where we're going to, you know, get some

moneyelves up and treating America

unfairly. So what the president's view

is and what he's instructed me to do is

say, look, if you're willing to open

yourself up and really open your economy

to American business, to ranchers,

fishermen, food, I think the president

is absolutely going to renegotiate

USNCA. But that's a year from today.

>> Exactly.

>> Oh, okay. A year from today. We want to

renegotiate USMCA. It gets better and

better every time

>> with the European Union.

>> This is a big one by the way, the EU

question.

>> You know, I was on the phone with the

European trade negotiators this morning

about a half hour ago. So, there's

plenty of room. Look, the president and

European Union, these are the two

biggest trading partners in the world

talking to each other. We'll get a deal

done. I am confident we'll get a deal

done. Okay? And it will be great for

America because the president has the

back of America. So I think all these

key countries will figure out it is

better to open their markets to the

United States of America than to pay a

significant tariff. And Donald Trump has

made that point clear. No one has

protected America the way Donald Trump

has protected America. It is so fun to

work for him because I have him behind

me saying the right things for America

and I get to do those negotiations with

all these countries and you are going to

see the best set of trade deals you've

ever seen for America and for the

American people.

>> Is that August 1st deadline with the EU

a hard deadline? Are you going to get a

deal since you were just on the phone?

>> No. No, that's a hard deadline. So on

August 1st, the new tariff rates will

come in, but nothing stops countries

from talking to us after August 1st, but

they're going to start paying the

tariffs on August 1st. Now remember, the

world is paying that's going to be

interesting because, you know, we've

we've seen just delay after delay after

delay after delay. If we actually do

start seeing say 20 25% tariffs on the

European Union, really the largest

trading block that we trade with

and you get the reciprocal tariffs from

Europe, the second half, boy, is is

really setting up for, you know, there's

a lot of pressure on it. Let's put it

that way. All-time high valuations, the

impact of the tariffs everybody was

worried about in April, it's actually

pushed off to the second half. You've

got, you know, talk about the

unemployment rate potentially going up

towards the end of the year thanks to

layoffs, which isn't just like

speculation. It's it's really it's I

mean, I guess it's speculation, but it's

it's coming from the Fed as well. Now,

Federal Reserve is forecasting the

unemployment rate going to go up

anywhere between 3 to 6% by the end of

the year. So, that should really start

manifesting between well really the next

four to five months. So, we'll see.

>> 10% right now and China's paying 30%. So

that's right now and that's why we're

running at about third plus $30 billion

a month for the American people. You got

to remember this is going to pay off our

deficit. This is going to make America

stronger. We are finally protecting

America.

>> Well, you'll have that income if you

keep them in place, but if you're

negotiating them away, then they won't

be there. So I that that is

contradictory to me, but

>> nothing's getting No, no, no, no, no.

the way we have a 10% in the world.

>> No, no, 10% is definitely going to stay.

Many countries will pay higher like

Vietnam and Indonesia, right? They're 19

and 20%. Most countries will pay higher.

The small countries are likely to be

10%. But the bigger countries are likely

to pay higher. That's just the way it's

going to be because we can't have these

$1 trillion trade deficit. It's just

wrong for America and Donald Trump is

going to fix it. And American

corporations are just going to swallow

that and not pass that price increase on

to consumers. What's your project?

>> What what's so interesting is that

you're worried about the importers. How

about the people who build and employ

Americans? No. I'm

>> ask people go to the store cars here.

People who manufacture here, they don't

pay a tariff. They don't pay a tariff at

all. So, President Trump says it all the

time. Build in America, you don't pay a

tariff. The idea that these importers

are more important than the people who

employ Americans, I think it's just a

wrong way of thinking about it.

Americans deserve to be employed here

and have the best jobs in the world. And

that's what Donald Trump is trying.

>> Yeah, that's the most juicy portion

really of the interview. You get this

idea of, hey, like 10% baseline for all

other countries. We'll negotiate with

the bigger ones, but the bigger ones are

going to be even bigger. And so they're

really addicted to the sugar cane of the

money that's coming in from tariffs,

which is concerning because, you know,

the first half of the year has been

we're going to have tariffs. Just

kidding. We're going to delay the impact

of the tariffs. Just kidding. We're

going to negotiate them away. Now it's

like, no, no, we're going to have

tariffs because the stock market's at

all-time high and doesn't care, so we

may as well have tariffs. Well, that

only works until it doesn't. Anyway,

real GDP expected to grow at 1.6% this

year. Uh let's see the coincident

indicator rose for June being unchanged

for May and April. Uh four components

include payroll, employment, personal

income, less transfer payments,

manufacturing, trade, sales, industrial

production, and let's see, and they are

included to determine if you're

currently in a recession, which no, uh

at least not based on the coincident. Uh

and let's see here. LEI's weak growth

rate and diffusion index over the past 6

months triggered a recession signal for

the third consecutive month in June. All

right, who knows? Like we said, maybe

this time is different. Then summary of

the table.

That's it. So that's your LEI and Lutnik

update for the day.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Praath there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your take.