The Conference Board’s Leading Economic Indicators (LEI) came in at 123.9. April’s reading, while quite strong, is still below the prior expansion’s peak of 126.0 in March 2006.

What does this imply for the incursion of the next recession? Here is a look.

Economic Recovery – The LEI and Recession Incursion

A look at the LEI (pink line) and recessions (gray bars) follows.

Typically it takes 4 years for the LEI to reach its prior expansion’s peak. At 123.9, the LEI is still below the prior expansion’s peak of 126.0. This suggests at least a few more months before matching the 2006 peak.

After the LEI reaches the prior expansion’s peak, the economy typically keeps expanding for, on average, another 5 years. That puts the next recession 6 years off, or in 2022.

That would put make the current expansion the longest in recent prior, perhaps ever.

Looking at the Situation That’s Most Similar

The average look, of course, leaves out details. The current economic picture isn’t average. Instead, economic conditions, when measured by the labor market and consumer spending, puts the early 1970s as the most similar.

In the early 1970s, a recession materialized quickly after the LEI reached a peak. That one year time frame plus the time to get to the prior expansion’s peak would put the next recession in 2018.

Big difference.

Of course, if the 1990’s is the guide, then the next recession is long, long off.In the 1990’s, it took 3 years to reach the prior expansion’s peak and then the economy expanded another 8 years. If this happens, the next recession incurs in 2025.

Switching to the Federal Reserve Picture

If the average of past experience holds, the LEI puts the next recession in 2022. What does the Federal Reserve’s tightening experience say?

The Fed started raising rates (if you can call it that) on December 15, 2015. Typically, when the Fed begins a tightening cycle, the economy expands another 4 years.That puts the next recession in late 2019. The range is 3 years (2004 to 2007) to 7 years (the 1990’s).