The U.S. Leading Economic Index: Why This Slowdown Feels Different from 2008

In our earlier article we examined the September 2025 release of the U.S. Leading Economic Index® (LEI) and concluded that the economy is flashing yellow—a signal of slowing momentum rather than an imminent recession. The index’s persistent weakness points to a fragile expansion, supported by financial stabilizers but increasingly strained by uneven sectoral stress.

A natural follow-up question quickly emerged: how does this compare to the warning signs before the Great Recession of 2008?

The latest Leading Economic Index (LEI) data shows why comparisons to 2008 are overblown — but also why risks are rising quickly. This slowdown is different. Here’s what it really means.

The LEI as an Early Warning System

The Conference Board’s LEI has reliably led U.S. business cycle turning points by roughly seven months since the 1960s. Ahead of the Great Recession (December 2007–June 2009), the index sent unmistakable warnings through sharp, synchronized declines across most of its components.

Interpreting these signals requires the Conference Board’s well-established “3Ds” framework:

1. Depth: the size of the decline, typically measured by the annualized six-month change
2. Duration: how long weakness persists
3. Diffusion: how broadly weakness is spread across the LEI’s ten components

Historically, recessions are signaled only when all three align decisively—with diffusion below 50% and depth reaching roughly −4.3% annualized.

Where the Stresses Overlap — and Where They Diverge

Similarities with 2008 (But Much Milder)

Consumer Expectations: Pessimism persists — consumers have grown cautious about future income and business conditions, a sentiment influenced by high prices, tariffs, and policy uncertainty. However, this caution has not triggered a sharp collapse in spending. Implication: Sentiment drag exists, but not panic.

Manufacturing & Housing: Weakness in new orders and housing permits mirrors patterns seen before prior recessions. Yet unlike the housing excess and credit surges of the mid‑2000s, current softness reflects normalization after pandemic highs rather than speculative bubbles. Implication: Sectoral stress without systemic collapse.

Labor Market Weakness: The labor market still shows resilience relative to past recessions, but cracks are emerging:

1. The unemployment rate rose to about 4.6% in late 2025, the highest reading since 2021, with job gains recently lagging expectations.
2. Initial unemployment claims have trended higher, suggesting layoffs are increasing. BLS data shows softer payroll momentum in sectors like transportation and manufacturing.
3. A leading employment indicator from the Conference Board suggests employment momentum is weakening, with its Employment Trends Index slipping in recent months.

Implication: The labor market is softening — an important signal — but not collapsing the way it did pre‑2008.

Differences from 2008 (Crucial and Consequential)

Financial Stability Remains a Buffer: Unlike 2008, credit markets are functioning, defaults remain contained, and banks are not exhibiting widespread stress. Implication: The financial system is not the epicentre of risk today.

Sectoral vs Systemic Weakness: Current economic strains are rooted in policy uncertainty, structural change, and sentiment shifts rather than a breakdown of credit or housing finance. Implication: Slowdowns are uneven, not systemic.

Trigger Dynamics Are Different:

1. 2008: A financial crisis driven by credit contagion.
2. 2025–26: A combination of policy, behavioural, and structural factors, particularly rising technology investment concentrated in AI and related sectors. Implication: Risks are real, but fundamentally different in source and transmission.

Why This Slowdown Feels Different

Labour Market: Softening But Not Sinking

The modest rise in unemployment and weakening employment indicators are typical for late‑cycle environments. These shifts are enough to slow consumer confidence and business hiring plans, but they lack the severity of pre‑recession collapses. Implication: Labour stress weighs on growth, but doesn’t yet signal recession.

Market Performance and the AI Connection

One striking feature of this cycle is how equity markets — especially tech and AI‑linked stocks — are propping up overall economic confidence even as traditional indicators soften:

1. According to Barron’s, in the first nine months of 2025, the AI categories represented 37% of real GDP growth from the same period in 2024. Without this AI investment boost, growth would have been materially lower.
2. Broader OECD analysis shows AI adoption remains a significant component of productivity and growth prospects in advanced economies, reinforcing how tech investment can amplify measured output even as other sectors stagnate.

Patchwork Economy:

1. Traditional demand drivers like consumer and business spending are mixed.
2. AI and technology investment — and the stock valuations tied to it — are disproportionately influencing headline indicators.

Implication: Equity market strength and AI‑linked investment cushion broader weakness, but this reflects concentrated sources of growth, not broad‑based momentum.

Policy Implications: What This All Means for 2026

The LEI’s pattern — weak but not alarmingly so — and mixed labor readings suggest moderated growth rather than contraction.

1. The Conference Board projects GDP growth slowing toward ~1.5% in 2026, reflecting tariff impacts, labor market normalization, and softer investment outside tech sectors.
2. For the Federal Reserve, this mix argues for calibrated policy: too tight and slowing pressures deepen; too loose and inflation risks re‑emerge. Emerging forecasts suggest potential modest rate adjustments in response to labor slack and growth moderation.

Implication: The central bank’s challenge is balancing growth risks with inflation resilience — a classic late‑cycle dilemma, not a crisis response.

The Bottom Line

Today’s LEI isn’t flashing the classic red alerts of 2008. Instead, it shows a series of yellow caution flags: softening labor, uneven sectoral performance, cautious consumers, and selective strength in financial markets and tech investment.

This slowdown feels different because it truly is different — rooted in structural shifts, concentrated investment themes, and policy uncertainties rather than credit contagion.

Yellow light: Caution is warranted. Panic isn’t. But assuming that “not collapsing” equals “fine” would be the real error.