U.S. leading indicators suggest sluggish economy ahead

With December's decline, the leading index is down 0.8% (a decline of 1.6% annualized) from June 2007 to December 2007, and is 1.4% below its December 2006 level. The Conference Board noted that the leading index has "weakened sharply" since mid-2007.

"Taken together, the recent behavior of the composite indexes highlights increasing risks for further economic weakness, and suggest that economic activity is likely to be sluggish in the near term," the Conference Board said.

Economist Steve Affinito told BloggingStocks Friday the Leading Index is another negative data point regarding the U.S. economy's current health.

"I'm not as big a fan of the Leading Index as others are, and I prefer to rely on the fundamentals themselves, like corporate earnings, job creation, industrial production, retail sales and housing starts, but when you combine the Leading Index with previous data points, the conclusion is obvious. The U.S. economy has slowed substantially," Affinito said.

U.S: in recession?

Still, Affinito, despite the data amassed, was not confident enough to declare that the U.S. economy is in recession.

"We could register anemic GDP growth of 1.0% or 1.5% in Q1, which, technically is not a recession," Affinito said. "But that doesn't eliminate a need for additional monetary and fiscal policy stimulus in the quarters ahead." The U.S. Federal Reserve is widely expected to cut interest rates for the fourth time in a year later this month, and the U.S. Congress and President Bush are currently negotiating a fiscal package of tax cuts and/or spending measures to stimulate the U.S. economy.

The index of leading indicators is designed to predict turning points in the economy - - such as recessions and recoveries - - although economists such as Affinito caution that the index is not a perfect predictor of future economic conditions.