The U.S. Leading Index Increases
Monday, January 24, 2005
Jan. 20, 2005 -- The Conference Board announced today that the U.S. leading index increased 0.2 percent, the coincident index increased 0.3 percent and the lagging index remained unchanged in December. The leading index increased again in December and November's increase was revised up slightly. These consecutive increases follow five consecutive declines, and the weakness in the leading indicators has become somewhat less widespread. It is now more likely that the five-month decline in the leading index was only a pause in the rising trend that has been underway since March 2003. The coincident index, an index of current economic activity, increased again in December, and the strength in the coincident index continues to be widespread. At the same time, real GDP growth in the third quarter was revised up slightly to a 4.0 percent annual rate, a pickup from 3.3 percent growth in the second quarter. The growth rate of the leading index slowed below its long-term trend (a 1.5 percent annual rate) in the second half of 2004, but not to a rate that has historically been associated with a recession. The behavior of the leading index since the middle of 2004 is consistent with the economy continuing to expand in the near term, but more slowly than its long-term trend rate. 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 index of consumer expectations, stock prices, real money supply*, and average weekly initial claims for unemployment insurance (inverted). The negative contributors - beginning with the largest negative contributor – were vendor performance, interest rate spread, manufacturers’ new orders for nondefense capital goods*, building permits, and manufacturers’ new orders for consumer goods and materials*. The average weekly manufacturing hours held steady in December. The leading index now stands at 115.4 (1996=100). Based on revised data, this index increased 0.3 percent in November and decreased 0.3 percent in October. During the six-month span through December, the leading index decreased 0.9 percent, with six out of ten components advancing (diffusion index, six-month span equals sixty percent). Coincident Indicators.All four indicators that make up the coincident index increased in December. The positive contributors to the index - beginning with the largest positive contributor - were industrial production, employees on nonagricultural payrolls, personal income less transfer payments*, and manufacturing and trade sales*. The coincident index now stands at 118.6 (1996=100). This index increased 0.2 percent in November and increased 0.3 percent in October. During the six-month period through December, the coincident index increased 1.2 percent. Lagging Indicators. The lagging index stands at 98.9 (1996=100) in December, with three of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were average duration of unemployment (inverted), average prime rate charged by banks, and ratio of manufacturing and trade inventories to sales*. The negative contributors were commercial and industrial loans outstanding*, change in CPI for services, change in labor cost per unit of output*, and ratio of consumer installment credit to personal income*. Based on revised data, the lagging index decreased 0.3 percent in November and increased 0.1 percent in October. 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 January 19, 2005. 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.