• The Conference Board’s Leading Economic Index (LEI) fell 0.5% in August, a much steeper decline than the 0.1% consensus forecast.
  • The index has now declined for three consecutive months, pointing to worsening near-term economic prospects amid weak new orders and pessimistic consumer expectations.
  • While a full recession is not currently projected, GDP growth is expected to remain subdued at 1.6% for 2025, with downside risks from ongoing tariffs.

A Deteriorating Outlook

The leading indicator for the U.S. economy flashed a more concerning signal in August than analysts had anticipated. The Conference Board’s LEI fell 0.5% for the month, a significantly sharper contraction than the modest 0.1% drop economists had forecast. This follows declines of 0.1% in July and 0.3% in June, cementing a negative trend for the third quarter.

The principal drivers of the downturn were weak new orders in manufacturing, deteriorating consumer expectations about business conditions, and a pullback in building permits. These negative factors easily outweighed modest support from rising equity prices and lower initial claims for unemployment insurance, according to the report.

Structural Headwinds Persist

This persistent weakness suggests deeper structural concerns are taking root. The Conference Board noted that while a recession is not its base case, the repeated negative readings indicate the economy’s momentum is faltering. The organization’s current projection for real GDP growth stands at a tepid 1.6% for 2025, potentially slowing further to 1.3% in 2026.

Tariffs are increasingly cited by economists as a primary policy factor weighing on activity, with their full impact expected to become more visible in the second half of the year. This is dampening growth and feeding into a cycle of pessimism among both businesses and consumers, who reported increased uncertainty about the job market.

The LEI is designed to signal turning points in the business cycle, and its current trajectory resembles periods that preceded past economic slowdowns. The continued decline presents a challenge for policymakers, who must balance the divergence between weakening economic data and a stock market that, until recently, had been setting new highs.