The leading index decreased again in August. From February to August, the leading index fell by 0.6 percent (a -1.2 percent annual rate). The leading index has declined in 5 of the last 8 months. Weaknesses and strengths among the leading indicators have been fairly balanced in recent months, resulting in a trend that is more flat than declining. Weakening housing permits and consumer expectations made the largest negative contributions to the leading index from February to August, offsetting significant positive contributions from average weekly hours in manufacturing and vendor performance.
The coincident index rose slightly in August. This measure of current economic activity has been increasing consistently since September 2005, although the pace moderated slightly in recent months. From February to August, the coincident index grew 1.1 percent (a 2.1 percent annual rate), and the strengths (especially in employment and production) continued to be more widespread than weaknesses in recent months.
The leading index has fallen below its most recent high reached in January, but it was still 0.4 percent above its year ago level in August. At the same time, real GDP growth slowed to a 2.5 percent (annual) rate in the second quarter, following a 5.6 percent gain in the first quarter. The behavior of the leading index so far suggests that economic growth should continue at a slow but steady pace in the near term.
LEADING INDICATORS. Three of the ten indicators that make up the leading index increased in August. 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 index of consumer expectations, building permits, average weekly manufacturing hours, interest rate spread, average weekly initial claims for unemployment insurance (inverted), vendor performance, and manufacturers' new orders for nondefense capital goods*.
The leading index now stands at 137.6 (1996=100). Based on revised data, this index decreased 0.2 percent in July and increased 0.1 percent in June. During the six-month span through August, the leading index decreased 0.6 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent).
COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in August. 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.
LAGGING INDICATORS. The lagging index stands at 124.2 (1996=100) in August, with four 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, ratio of manufacturing and trade inventories to sales*, and ratio of consumer installment credit outstanding to personal income*. The negative contributors — beginning with the largest negative contributor — were change in labor cost per unit of output* and average duration of unemployment (inverted). The average prime rate charged by banks* held steady in August. Based on revised data, the lagging index decreased 0.2 percent in July and increased 0.6 percent in June.
DATA AVAILABILITY AND NOTES. The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available "as of" 12 Noon on September 20, 2006. Some series are estimated as noted below.
* Series in the leading index that are based on The Conference Board estimates are manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods, and the personal consumption expenditure used to deflate the money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.
The procedure used to estimate the current month's personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month's consumer price index when it is available before the release of the U.S. Leading Economic Indicators.
Effective with the September 18, 2003 release, the method for calculating manufacturers' new orders for consumer goods and materials (A0M008) and manufacturers' new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.
Effective with the January 22, 2004 release a programming error in the calculation of the leading index — in place since January 2002 — has been corrected. The cyclical behavior of the leading index was not affected by either the calculation error or its correction, but the level of the index in the 1959-1996 period is slightly higher.
