Key Economic Index Signals Gathering Headwinds for US Economy in 2026
The Conference Board's Leading Economic Index declined for a second straight month, driven by weakening consumer and business sentiment.
A closely watched gauge of future U.S. economic activity has extended its decline, signaling a potential slowdown in growth heading into 2026 as pessimism among consumers and businesses begins to take hold.
The Conference Board reported Tuesday that its Leading Economic Index (LEI) fell by 0.3% in September 2025, matching an upwardly revised dip from the prior month. The persistent weakness in the index, which is designed to predict inflection points in the business cycle, suggests that the robust consumer spending seen mid-year may give way to more challenging economic conditions.
The decline was driven by several key components, including deteriorating consumer expectations, a drop in new manufacturing orders, and a rise in initial claims for unemployment benefits. Over the six-month period ending in September, the LEI slumped by 2.1%, a more rapid descent than the 1.3% contraction seen in the previous six-month span.
"Weakening expectations from both consumers and businesses were the primary drivers of the overall contraction in the Index," said Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board. The organization now forecasts that U.S. GDP growth, which it projects at 1.8% for 2025, will slow to 1.5% in 2026, noting that "growth remains fragile and uneven."
This outlook aligns with a growing consensus among economists who anticipate a period of below-trend growth. Projections for 2026 generally see the U.S. economy expanding between 1.5% and 2.2%, with inflation remaining stubbornly above the Federal Reserve's 2% target. Some economists have begun to characterize the potential environment as "stagflation-lite," combining sluggish growth with persistent price pressures.
The forward-looking components of the LEI paint a cautious picture for investors and corporate leaders. Weakness in the ISM New Orders Index points to a slowdown in the manufacturing sector, while declining building permits can signal a cooling housing market. These factors, combined with a still-inverted yield curve—a historical predictor of recessions—are contributing to the heightened sense of alert.
However, not all components of the index were negative. Positive contributions from stock prices and new orders for non-defense capital goods provided some offset, indicating pockets of resilience within the economy.
Still, the overall trend has prompted market participants to reassess future earnings growth and economic resilience. While the data does not guarantee a recession, the continued slide in the LEI serves as a clear warning that the U.S. economy faces significant headwinds and rising uncertainty as it moves into 2026.