Recovery Will Need More Than Optimism

The leading index does have a better track record on spotting recoveries than recessions, but it will take at least three consecutive months of gains to provide a definite sign. However, prospects that the leading index can sustain its recent bounce and continue to signal recovery look shaky.

In March, consumer optimism rose even more than it did in February, possibly by enough to lift the March leading index. However, stock prices did not follow through last month, and other indicators, such as initial unemployment claims and commodity prices, weakened. April could provide the real test.

Even if the index did bottom out in February, the lead time before the start of an upturn has varied widely in the past, from 1 to 10 months. At best, this may be one of the longer lead times. Consumer spending remains in a tailspin, comparable to the declines accompanying the severe 1973-75 and 1981-82 recessions. Construction still hasn't hit bottom. And manufacturing may be getting into deeper trouble.