The coincident index was unchanged in October, for the first time in 2007, following steady increases since the beginning of the year. Employees on nonagricultural payrolls, personal income less transfer payments, and manufacturing trade and sales made small positive contributions to the index this month, but these gains were offset by the decline in industrial production.
The coincident index increased 0.9 percent (a 1.8 percent annual rate) from April to October, which is modestly below the 1.1 percent pace in recent months (about a 2.3 percent annual rate). However, the strengths among the coincident indicators remain very widespread. In addition, the lagging index continued to increase in October, and as a result, the ratio of the coincident index to the lagging index continued to decrease. (This ratio tends to have long leads in the business cycle).
The leading index has been essentially flat in 2007, continuing the yearlong pattern of alternating monthly increases and decreases, and it has gradually returned to its August 2006 level. Meanwhile, real GDP grew at a 3.9 percent annual rate in the third quarter, moderately stronger than the 2.2 percent average annual rate in the first half of the year. The behavior of the composite indexes so far continues to suggest that risks for economic weakness persist, but economic growth should continue in the near term, albeit at a slower pace.
LEADING INDICATORS
Three of the ten indicators that make up the leading index increased in October. The positive contributors - beginning with the largest positive contributor - were stock prices, real money supply, and manufacturers' new orders for consumer goods and materials. The negative contributors - beginning with the largest negative contributor - were building permits, average weekly initial claims for unemployment insurance (inverted), index of consumer expectations, vendor performance, average weekly manufacturing hours, manufacturers' new orders for nondefense capital goods, and interest rate spread.
The leading index now stands at 136.9 (1996=100). Based on revised data, this index increased 0.1 percent in September and decreased 0.9 percent in August. During the six-month span through October, the leading index decreased 0.5 percent, with five out of ten components advancing (diffusion index, six-month span equals 50 percent).
COINCIDENT INDICATORS
Three of the four indicators that make up the coincident index increased in October. The positive contributors to the index - beginning with the largest positive contributor - were employees on nonagricultural payrolls, personal income less transfer payments, and manufacturing and trade sales. The negative contributor was industrial production.
The coincident index now stands at 125.1 (1996=100). This index increased 0.2 percent in September and increased 0.2 percent in August. During the six-month period through October, the coincident index increased 0.9 percent.
LAGGING INDICATORS
The lagging index stands at 129.9 (1996=100) in October, with five of the seven components advancing. The positive contributors to the index - beginning with the largest positive contributor - were commercial and industrial loans outstanding, change in CPI for services, change in labor cost per unit of output, ratio of manufacturing and trade inventories to sales and ratio of consumer installment credit to personal income. The negative contributors - beginning with the larger negative contributor - were average duration of unemployment (inverted) and average prime rate charged by banks. Based on revised data, the lagging index increased 0.4 percent in September and increased 0.3 percent in August.
