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The U.S. economy is slowing and likely to soften further, leading indicators show

MarketWatch logo MarketWatch 6/17/2022 Jeffry Bartash
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ECONOMIC REPORT

The numbers: The U.S. leading index fell in May by 0.4% for the second month in a row, indicating the economy has slowed in response to high inflation and rising interest rates.


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The decline matched the forecast of economists polled by The Wall Street Journal.

The LEI is a weighted gauge of 10 indicators designed to show whether the economy is getting better or worse.

Big picture: The U.S. economy is still expanding, but stiffer headwinds are starting to hold it back.

Inflation jumped to a 40-year high in May and the Federal Reserve is raising interest sharply to try to slow the economy and ease the upward pressure on prices.

If inflation doesn’t begin to slow later in the year, economists warn, higher rates could eventually tilt the U.S. economy into recession.

Key details: The leading economic index fell largely because of declining stock prices, a slowdown in home building and falling consumer confidence.

A measure of current economic condition rose 0.2% in May, the Conference Board, the publisher of the report, said Friday.

Americans are still somewhat confident in the economy right now, but they are more worried about the future.

The so-called lagging index — a look of sorts in the rearview mirror — climbed by 0.8%. But that was before inflation hit a fresh 40-year high of 8.6%.

Looking ahead: “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term — and tighter monetary policy is poised to dampen economic growth even further,” said Ataman Ozyildirim, senior director of economic research at the board.

Market reaction: The Dow Jones Industrial Average and S&P 500 opened higher on Friday — a day after the Dow fell below 30,000 for the first time in more than a year and a half — but turned negative later in the morning.

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