The U.S. Leading Index Decreases for a Fifth Consecutive Month
Press release from the issuing company
Nov. 18, 2004 -- The Conference Board announced today that the U.S. leading index decreased 0.3 percent, the coincident index increased 0.3 percent and the lagging index increased 0.2 percent in October.
The leading index fell again in October, the fifth consecutive decline, and the weakness in recent months has become more widespread. The major contributors to October's decline were the real money supply, the interest rate spread, and consumer expectations. However, the recent declines in the leading index have not been large enough nor have they persisted for long enough to signal an end to the current economic expansion.
The coincident index, an index of current economic activity, increased again in October and its growth continues to be widespread. At the same time, real GDP growth picked up slightly to a 3.7 percent annual rate in the third quarter from 3.3 percent in the second quarter.
While the leading index is not yet signaling a downturn in the economy, the growth rate of the leading index has slowed below its long-term trend growth rate. This is consistent with real GDP continuing to grow in the near term, but more slowly than its long-term trend rate.
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 average weekly initial claims for unemployment insurance (inverted), manufacturers’ new orders for consumer goods and materials*, and stock prices. The negative contributors - beginning with the largest negative contributor – were index of consumer expectations, real money supply*, interest rate spread, vendor performance, average weekly manufacturing hours, building permits, and manufacturers’ new orders for nondefense capital goods*.
The leading index now stands at 115.1 (1996=100). Based on revised data, this index decreased 0.3 in October and decreased 0.3 percent in September. During the six-month span through October, the leading index decreased 0.7 percent, with three out of ten components advancing (diffusion index, six-month span equals thirty-five percent).
Coincident Indicators.All 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, industrial production, personal income less transfer payments*, and manufacturing and trade sales*.
The coincident index now stands at 118.3 (1996=100). This index increased 0.3 percent in October and increased 0.1 percent in September. During the six-month period through October, the coincident index increased 1.0 percent.
Lagging Indicators. The lagging index stands at 98.5 (1996=100) in October, 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*, average prime rate charged by banks, ratio of consumer installment credit to personal income*, and ratio of manufacturing and trade inventories to sales*. The negative contributors were change in CPI for services and change in labor cost per unit of output*. The average duration of unemployment (inverted) held steady in October. Based on revised data, the lagging index increased 0.2 percent in October and increased 0.1 percent in September.
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 November 17, 2004. 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 deflator for 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, and the personal consumption expenditure deflator for 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.
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