by Thomas Wash | PDF

The business cycle has a major impact on financial markets; recessions usually accompany bear markets in equities.  The intention of this report is to keep our readers apprised of the potential for recession, updated on a monthly basis.  Although it isn’t the final word on our views about recession, it is part of our process in signaling the potential for a downturn.

The Confluence Diffusion Index fell deeper into contraction, in a sign that the expansion is struggling to gain traction. The April report showed that seven out of 11 benchmarks are in contraction territory. Last month, the diffusion index slipped from -0.1515 to -0.2121, below the recovery signal of -0.1000.

• Financial conditions loosened as Fed officials kept rate cuts on the table for 2024.
• Goods-producing activity tapered as households grow more pessimistic about the economy.
• Employment gains slowed in a sign that the labor market is starting to cool.

The chart above shows the Confluence Diffusion Index. It uses a three-month moving average of 11 leading indicators to track the state of the business cycle. The red line signals when the business cycle is headed toward a contraction, while the blue line signals when the business cycle is in recovery. The diffusion index currently provides about six months of lead time for a contraction and five months of lead time for recovery. Continue reading for an in-depth understanding of how the indicators are performing. At the end of the report, the Glossary of Charts describes each chart and its measures. In addition, a chart title listed in red indicates that the index is signaling recession.

Read the full report