US economy: peak uncertainty as growth indicators misfire

Three major uncertainties are shaping markets in 2025. First, the current trajectory of economic growth is unclear given Donald Trump’s haphazard tariff dealmaking. Second, geopolitical flashpoints are weighing on commodity prices. Third, markets view the stretched valuations of certain assets – chiefly US equities – with apprehension.

In the first of three articles on this topic, we focus on the growth trajectory of the US economy. A core set of global economic signals traditionally guide assessments of US cycles, but are they currently aligned? This week in Simply put, we focus on this mosaic of indicators to determine if they are reliable in the current environment.

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Which indicators capture growth trends in the US economy?

Numerous indicators can provide a reading of US growth before GDP announcements, which often come far too late to be truly useful for investors. We focus on nine signals that usually help determine what phase of the cycle we are in.

The first group  consists of ‘survey’ indicators. Here, we consider the surveys by the Philadelphia Federal Reserve, Richmond Federal Reserve and the US ISM Composite (which combines manufacturing and services surveys). The second group features indicators that aggregate different measures: notably the Aruoba and the Atlanta Federal Reserve's GDPNow. Finally, there are other more discrete indicators: the Sahm Rule, which transforms the unemployment rate into a recession timing indicator; the capacity utilisation rate, which measures how much of an organisation’s potential output is being fulfilled; and the Kilian and Zhou indicator, which measures economic activity based on maritime freight.

These indicators have performed credibly in their tracking of US growth over recent decades. However, Figure 1 presents their recent levels and the message is one of dispersion. The survey indicators are generally negative by one standard deviation, composite indicators are close to their long-term averages, and productive capacities and cargo loading are marginally negative. From the nine indicators, we  see contrasting views of the cycle, from risks to growth to cruising speed.

FIG 1. Divorced from reality: recent levels of key US growth indicators¹

Are economic growth signals failing?

While there is variance among these indicators, none signal that the American economy is experiencing explosive growth. Far from it.

Subdued growth is reflected in Figure 2, which shows an average of these indicators compared to the LOIM growth nowcasting signal. Our indicator aggregates past readings of US economic indicators to ‘nowcast’ the country's growth trajectory. The graph shows the apparent benefit of an aggregated nowcaster, which has captured fewer false signals over the last decade.

However, more recently, both our nowcasting signal and the indicator formed by the average of the nine indicators listed above show signs of economic weakness – which has persisted for 33 months in total. Nevertheless, US growth during this period has been strong even as  all cycle markers pointed to a slowdown.

FIG 2. Downtrend: an average of US cycle indicators vs the LOIM US growth nowcaster²

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Since 1981, there have only been two other periods when signals showed continuous economic deterioration for more than 30 months – the years surrounding the dotcom crash and 2008 global financial crisis. As such, today we are in the longest period of negative growth readings without the US economy actually contracting in more than 40 years. Moreover, after 30 months of weakness, these indicators are typically on a clear upward trend (see Figure 3).

With such an improvement nonexistent today, have these usually reliable indicators lost their relevance?

FIG 3. Average of economic indicators based on consecutive months in negative territory³

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Bad timing: indicators are out of touch with the cycle

To address this question, we assess how strongly correlated each indicator is with defined periods of economic growth over the long term, from 1981-2025, and more recently, from 2021-2025 (see Figure 4). Our US growth nowcaster is included in the analysis.

The finding is clear: in recent years, the correlations between these indicators and US growth, as measured by the National Bureau of Economic Research (NBER), have collapsed. The correlation that has declined the least is that of the Sahm Rule, followed by our nowcaster, at 33% and 16% respectively during the 2021-2025 period. The average of all correlations has declined by a factor of two from 25% to 13%. As signals trusted by economists across the world seemingly lose traction with US growth, uncertainty about the trajectory of the world’s largest economy grows.

FIG 4. Correlation breakdown: key US economic indicators and growth regimes⁴

When signals lose predictive power

Digging deeper, we find that only 20% of the nine indicators we are tracking currently cited above point to the current period of expansion as indicated by NBER, leaving 80% of them pointing toward recession (see Figure 5). We know that false signals can be common in economic data, but it is clear that proponents of strong US growth for these coming quarters have the majority of the (historically) most relevant measures of the cycle against them. These indicators have lost predictive power, leaving observers in full macroeconomic uncertainty.

FIG 5. Percentage of indicators pointing toward expansion vs. NBER dating⁵

What this means for multi-asset investing

Such uncertainty is indirectly reflected in our current positioning. Realised volatilities of numerous risk premia remain elevated, while trends in cyclical assets have improved. Our macro signals are in a neutral zone – or limbo – while our global market exposure remains below historical averages. Therefore, our allocations partly reflect this period of increased uncertainty, betting on diversification and moderate market exposure.

Simply put, the loss of predictive power among key growth indicators creates uncertainty about the US economy’s trajectory. In response, we seek diversification.

Macro/nowcasting corner

The most recent evolution of our proprietary nowcasting indicators for global growth, global inflation surprises, and global monetary policy surprises are designed to track the recent progression of macroeconomic factors driving the markets.

Our nowcasting indicators currently show:

• Growth fell, with a greater drop observed in the US, primarily due to declining data in industrial productivity. It also eased in the eurozone while remaining stable in China
• Inflation remained flat overall. In China, however, the indicator has continued to decline since mid-May, driven in part by weakening consumption data
• The chances of monetary policy surprises decreased in the US mainly because of the uncertain growth outlook. The indicator rose slightly in China and the eurozone. 

World growth nowcaster: long-term (left) and recent evolution (right)

Reading note: LOIM’s nowcasting indicator gather economic indicators in a point-in-time manner in order to measure the likelihood of a given macro risk – growth, inflation surprises and monetary policy surprises. The nowcaster varies between 0% (low growth, low inflation surprises and dovish monetary policy) and 100% (the high growth, high inflation surprises and hawkish monetary policy).