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Recession still forecast despite labor market strength

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Leading economic index falls in January

The Conference Board Leading Economic Index for the US fell by 0.3% in January to a reading of 110.3 (2016=100). The decrease follows a decline of 0.8% in December, and the US economy is still expected to tip into a recession this year despite strength in the labor market. 

Over the last six months, the Leading Economic Index is now down 3.6%, between July 2022 and January 2023 — a steeper rate of decline than its 2.4% contraction over the previous six-month period between January and July 2022. 

Ataman Ozyildirim, Senior Director of Economics at The Conference Board commented: “The US [Leading Economic Index] remained on a downward trajectory, but its rate of decline moderated slightly in January. Among the leading indicators, deteriorating manufacturing new orders, consumers’ expectations of business conditions and credit conditions more than offset strengths in labor markets and stock prices to drive the index lower in the month.” 

Ozyildirim noted that while the index continues to signal a recession in the near term, indicators related to the labor market — including employment and personal income — remain robust. 

“The Conference Board still expects high inflation, rising interest rates and contracting consumer spending to tip the US economy into recession in 2023,” he added. 

Meanwhile, the annual growth rate of the index rose slightly in January.