May 2023 was another month indicating mostly neutral economic trends in the American Institute for Economic Research’s Business Conditions Monthly. AIER’s Leading Indicator rose to 67 in May 2023, its highest value since July 2021. The Lagging Indicator rose from 42 in April to 50 in May, shifting from mildly contracting to a neutral bias. At 75, the Roughly Coincident Indicator shows expansion, but at the slowest pace since February 2023. 

AIER Business Conditions Monthly (5 years)

AIER Business Conditions Monthly (1985 – present)

Leading Indicators (67)

Among the twelve components of the Leading Indicators, between April 2023 and May 2023 seven rose, three declined, and two were essentially unchanged. Expanding measures included the University of Michigan Consumer Expectations Index (11 percent), the Conference Board US Leading Index Manufacturers New Orders Consumer Goods & Materials (0.14 percent), the Conference Board US Leading Index Stock Prices 500 Common Stocks (0.60 percent), US New Privately Owned Housing Units Started by Structure Totals (16.4 percent), United States Heavy Trucks Sales (3.35 percent), Adjusted Retail & Food Services Sales Totals (0.35 percent), and debit balances in brokerage margin accounts (1.9 percent) all rose. 

US Average Weekly Hours All Employees Manufacturing and Inventory/Sales Ratio (Total Business) were essentially unchanged from April to May 2023. 

The remainder of the Leading Indicator components showed declines,  in May 2023. Those included US Initial Jobless Claims (-0.87 percent), Conference Board US Manufacturers New Orders Nondefense Capital Good Ex Aircraft (-0.09 percent), and the 1-to-10 year US Treasury spread (-15.53 percent).  

Roughly Coincident (75) and Lagging Indicators (50)

Among the Roughly Coincident Indicator constituents, four showed increases, one declined, and one showed a neutral change from April to May 2023. The three coincident Conference Board measures increased: Coincident Manufacturing and Trade Sales (0.27 percent), Conference Board Coincident Personal Income Less Transfer Payments (0.24 percent), and Consumer Confidence Present Situation (4.30 percent). Total US Employees on Nonfarm Payrolls rose as well (0.22 percent). The US Labor Force Participation Rate was unchanged, and US Industrial Production declined (-0.16 percent).

Among Lagging Indicators, in May 2023 three increased while three declined. The US Census Bureau’s Nonresidential Private Construction Spending (2.38 percent), the ISM Manufacturing Report on Business Inventories (0.16 percent), and 30-day average yields (3.82 percent) all rose. Over the same period, the US Consumer Price Index (ex. Food and Energy, year-over-year) fell (-3.64 percent), as did both the Conference Board’s Lagging Average Duration of Unemployment (-1.44 percent) and Lagging Commercial and Industrial Loans (-0.37 percent).


The April 2023 to May 2023 increase in the Leading Indicator from 58 to 67, as well as the fall in the Roughly Coincident Indicator from 92 to 75, took place amid more muted changes on a month-to-month basis. Three of the eighteen constituent indices were essentially unchanged, with only four changing by more than 1 percent. 

During the last quarter of 2022 and early 2023, predictions of an imminent US recession dominated the forecast landscape. (Our prediction, made in March 2023, was that a recession of unspecified severity would occur within the next twelve to eighteen months.) 

Yet the US economy has shown surprising resilience overall, and where weakness has emerged it has done so moderately. First quarter 2023 US GDP was recently revised upward from 1.3 percent to 2 percent. Additionally, in the first half of 2023 both the collapse of several large regional banks and an acrimonious debt ceiling stalemate were resolved without major damage to the economy. 

The lagged effects of 500 basis points of policy rate tightening, however, are nevertheless dampening growth. In conjunction with the continued decline in the general price level, a credit tightening, declining household cash buffers, and rising unemployment–the latter more readily observed on the state rather than the Federal level–are signs that the Federal Reserve’s contractionary policy campaign is becoming operative. Growing delinquencies in auto loans and credit card payments reveal a US consumer weakened by over two years of inflation, wages not keeping pace with price increases, and the dissipation of pandemic era fiscal stimuli. 

In March 2020, eligible Americans saw their student loan payments and interest suspended in anticipation of the detrimental effects upon employment and consumption that lockdowns and stay-at-home orders were anticipated to have. Those measures have been extended nine times over these subsequent three years. With the recent Supreme Court strikedown of the Biden administration’s student loan forgiveness plan, that forbearance will soon expire. Interest on those loans will begin accumulating again on September 1, 2023, and payments will resume in October 2023. 

Over 43 million Americans have student loan debt outstanding. The end of the loan payment moratorium is likely to have a substantially negative impact upon consumption, which may in turn accelerate the rise of unemployment and serve as a further drag on US economic growth. Access to financing in the wake of the Fed’s hiking campaign and increased credit stringency in the post-Silicon Valley Bank failure has been drying up, and will not support consumption at the level it has over the past few years.

Manufacturing has declined for seven consecutive months. Classic (if periodically unreliable) signs of an impending recession, including yield curve inversions and low employment diffusion, persist. US stock markets have risen throughout the first half of 2023, defying expectations. But although corporate earnings have recovered since the fall of 2022 much of the recent rise in stock indices has taken place amid rapidly decreasing breadth.

Given the Fed’s continuing commitment to interest rates remaining “higher for longer,” in addition to the likelihood of an additional one or more rate hikes before the end of this year, our March 2023 prediction of a US economic recession within the next twelve to eighteen months–by end-of-summer 2024–remains intact.  





(All charts and data sourced via Bloomberg Finance, LP)