* The coincident index increased modestly again in December, and all the components except for the industrial production index made small positive contributions this month. The coincident index increased 0.7 percent (a 1.5 percent annual rate) from June to December and the strengths among the coincident indicators remained very widespread. The coincident index, an index of current economic activity, has continued to increase on a steady upward trend, but its growth has been slowing in the fourth quarter. The lagging index increased again in December, and the ratio of coincident to lagging indexes declined again.
* The leading index has weakened sharply since mid-2007, with widespread weakness among its components in the last two months, and it has returned to the level attained in mid-2005. However, despite the spreading weakness, the index has declined only 1.5 percent (-0.8 percent at an annual rate) from its highest level in January 2006, compared to a decrease of about 3.0 percent (-2.6 percent at an annual rate) between its previous peak in January 2000 and March 2001. In addition, real GDP grew at an average annual rate of 3.1 percent through the third quarter of 2007 (including a 4.9 percent annual rate growth in the third quarter). Taken together, the recent behavior of the composite indexes highlights increasing risks for further economic weakness, and suggest that economic activity is likely to be sluggish in the near term.
LEADING INDICATORS. Four of the ten indicators that make up the leading index increased in December. The positive contributors — beginning with the largest positive contributor — were vendor performance, real money supply*, stock prices and manufacturers' new orders for consumer goods and materials*. The negative contributors — beginning with the largest negative contributor — were building permits, average weekly manufacturing hours, manufacturers' new orders for nondefense capital goods*, average weekly initial claims for unemployment insurance (inverted), index of consumer expectations, and the interest rate spread.
The leading index now stands at 136.5 (1996=100). Based on revised data, this index decreased 0.4 percent in November and decreased 0.7 percent in October. During the six-month span through December, the leading index decreased 0.8 percent, with three out of ten components advancing (diffusion index, six-month span equals 30 percent).
COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in December. The positive contributors to the index — beginning with the largest positive contributor — were personal income less transfer payments*, manufacturing and trade sales*, and employees on nonagricultural payrolls. The negative contributor was industrial production.
The coincident index now stands at 125.2 (1996=100). This index increased 0.1 percent in November and remained unchanged in October. During the six-month period through December, the coincident index increased 0.7 percent.
LAGGING INDICATORS. The lagging index stands at 130.6 (1996=100) in December, with five of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were average duration of unemployment (inverted), commercial and industrial loans outstanding*, change in labor cost per unit of output*, change in CPI for services, and ratio of consumer installment credit to personal income*. The negative contributor was the average prime rate charged by banks. The ratio of manufacturing and trade inventories to sales** held steady in December. Based on revised data, the lagging index increased 0.2 percent in November and increased 0.2 percent in October.
