A day after Cleveland Fed President Loretta Mester said more rate hikes may be necessary to cool consumer-level inflation, The Conference Board said indicators continue to point to a recession. Photo courtesy of the Federal Reserve Bank of Cleveland.
Feb. 17 (UPI) -- A leading index on the trajectory of the U.S. economy is pointing toward a recession, with expectations of lackluster consumer spending going forward, The Conference Board said Friday.
The board's Leading Economic Index declined by 0.3% in January, following an 0.8% contraction in December. Between July and January, the index is down 3.6%, compared with a 2.4% decline from January 2022 to July.
Ataman Ozyildirim, a senior director of economics at The Conference Board, said there was a decline in new orders from the manufacturing sector, consumer sentiment was souring and business conditions were deteriorating.
"While the LEI continues to signal recession in the near term, indicators related to the labor market -- including employment and personal income -- remain robust so far," he said. "Nonetheless, The Conference Board still expects high inflation, rising interest rates and contracting consumer spending to tip the U.S. economy into recession in 2023."
Consumer-level inflation is showing little sign of slowing down. Prices between December and January increased by 0.5% and annual inflation is at 6.4%, a downtick of just 0.1% from the previous month-on-month reading.
U.S. wholesale prices increased by 0.7% in January, the largest gain since early last year. The increase in the Producer Price Index, a measure of inflation at the wholesale level, followed a 0.3% rise in November and a 0.2% contraction in December.
Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said Thursday that aggressive rate hikes last year have managed to lower consumer-level inflation, but there's more work to do.
At this point, she said, there's a "compelling case" to increase the Fed's benchmark rate by another 50 basis points, twice as high as its first rate hike of the year, but less aggressive than the 75 basis point increases that dominated 2022.
Higher lending rates may be necessary to bring inflation to the 2% target for the U.S. Federal Reserve. More rate hikes would support higher lending rates for vehicles and mortgages, stifling the U.S. consumer.
Broader markets were mixed on Friday, but largely negative. Crude oil prices were in a steep decline, though the Dow was more or less even as of 12:30 p.m. EST. The S&P 500 was down 0.75%, while the tech-heavy NASDAQ was off by 1.2%.