- by New Deal democrat
Last week’s Q4 GDP release, as usual, updated two long leading indicators: proprietors’ income (a placeholder for corporate profits, which won’t be reported until next month at the earliest), and private residential fixed investment, a proxy for housing. They were of particular interest this time because, while the normalized yield curve (except at the short end) brought about by the Fed’s lowering interest rates has been getting a lot of attention as forecasting a good economy ahead, the rest of the long leading indicators aren’t doing so well. And that is of further particular concern because most of the critical coincident indicators of the economy aren’t doing so well, either.
Let’s take a look at them, starting with the two in the GDP report.
First, real private residential fixed investment declined slightly, and — the more precise long leading indicator — as a share of GDP made not just a new post-pandemic low in Q4, but a new 10+ year low:
Further, proprietors’ income declined for the third quarter in a row. The below graph shows it deflated by the PCE index, but even nominally there was a decline during Q4:
Here is the historical view (in log scale) to put it in more perspective:
The message of these two metrics would suggest a recession could happen at any time.
A third non-financial long leading indicator, real retail sales per capita, although not part of the GDP, after improving throughout 2024, was also faltering in the second half of 2025:
Although I won’t bother reposting graphs, as we know from last week, housing permits and units under construction also faltered during most of 2025.
In other words, take away the financial-based indicators, and the “real world” long leading indicators are flat at best.
Now let’s turn to the monthly coincident indicators that the NBER is said to track. The graph below norms them — payrolls, industrial production, real personal income less government transfers, and real manufacturing and trade sales — to 100 as of September. I’ve also included real retail sales, since the reporting on real manufacturing and trade industries sales is lagging so badly:
With the exception of industrial production, the best any of them have done since September is a 0.2% increase in real personal income as of November (before declining in December).
Note that there was lots of volatility early in 2024 that had to do with front-running the imposition of tariffs. So this is the same series shown YoY:
All of them except for industrial production are converging towards 0, i.e., no gain at all since one year ago.
Finally, although it isn’t necessarily part of the NBER’s calculations, real disposable personal income, both in total and per capita, also barely advanced in 2025, and particularly since July:
This is the discretionary money that consumers have to spend. As I pointed out last week, increased spending has only been as a result of consumers going into their savings, which renders them more vulnerable to any adverse shock.
In sum, we have an economy that is barely holding its head above water, and more compartments (to mix in a Titanic metaphor) are flooding.
