The CEI fell sharply in December, amid a further contraction in industrial production and employment. The six-month change in the CEI has continued to decline - to -2.2 percent (a -4.3 percent annual rate) in the period through December, down significantly from -0.7 percent (a -1.3 percent annual rate) from December 2007 to June 2008, and the weaknesses among its components have remained widespread in recent months. The lagging economic index (LAG) decreased less than the CEI this month, and as a result, the coincident-to-lagging ratio fell again. Meanwhile, real GDP contracted at a 0.5 percent annual rate in the third quarter of 2008, down from a 1.8 percent average annual rate of increase for the previous two quarters.
Despite December's modest increase in the LEI, it is about 5.0 percent lower than its most recent peak in July 2007 as a result of widespread declines among its components. And, it would have been weaker without the very large expansion in inflation-adjusted money supply in the last four months. The CEI has been deteriorating since its most recent peak in November 2007, and the decrease in this index over the past six months is the largest since 1980. Taken together, the recent behavior of the composite economic indexes suggests that the recession that began in December 2007 will continue in the near term.
LEADING INDICATORS
Four of the ten indicators that make up the leading economic index increased in December. The positive contributors - beginning with the largest positive contributor - were real money supply, interest rate spread, manufacturers' new orders for consumer goods and materials and manufacturers' new orders for nondefense capital goods. The negative contributors - beginning with the largest negative contributor - were building permits, average weekly manufacturing hours, index of supplier deliveries (vendor performance), average weekly initial claims for unemployment insurance (inverted), and stock prices. The index of consumer expectations held steady in December.
The leading economic index now stands at 99.5 (2004=100). Based on revised data, this index decreased 0.4 percent in November and decreased 1.0 percent in October. During the six-month span through December, the leading economic index decreased 2.5 percent, with three out of ten components advancing (diffusion index, six-month span equals 30 percent).
COINCIDENT INDICATORS
One of the four indicators that make up the coincident economic index increased in December. The positive contributor to the index was manufacturing and trade sales. The negative contributors were industrial production and employees on nonagricultural payrolls. Personal income less transfer payments held steady in December.
The coincident economic index now stands at 104.1 (2004=100). This index decreased 0.3 percent in November and increased 0.3 percent in October. During the six-month period through December, the coincident economic index decreased 2.2 percent, with one out of four components advancing (diffusion index, six-month span equals 25 percent).
LAGGING INDICATORS
The lagging economic index stands at 113.3 (2004=100) in December, with one of the seven components advancing. The positive contributor to the index was the ratio of consumer installment credit to personal income. The negative contributors - beginning with the largest negative contributor - were change in CPI for services, average duration of unemployment (inverted), average prime rate charged by banks, change in labor cost per unit of output, commercial and industrial loans outstanding, and ratio of manufacturing and trade inventories to sales. Based on revised data, the lagging economic index remained unchanged in November and increased 0.1 percent in October.
