The U.S. Leading Index Increases in February
Monday, March 21, 2005
Mar. 17, 2005 -- The Conference Board announced today that the U.S. leading index increased 0.1 percent, the coincident index increased 0.4 percent and the lagging index increased 0.4 percent in February. The leading index increased slightly in February following a decline in January. The leading index was on a rising trend from early 2003 to the middle of 2004, declined slightly for the next five months, and has now been increasing slightly since last October. In addition, there has been about an equal mix of strengths and weaknesses among its components. The coincident index, an index of current economic activity, increased in February, and the strength in the coincident index continues to be widespread. At the same time, real GDP increased at about a 4.0 percent average rate in the second half of 2004, up from 3.3 percent in the second quarter. The leading index was on a rising trend until mid-2004, but this trend was interrupted by a decline from June to October 2004. This decline was similar in magnitude and duration to an earlier decline from May to October 2002. The leading index has increased in three of the last four months, making it likely that the upward trend has not ended. The current behavior of the leading index (compared to its long-term trend of 1.5 percent) suggests the economy should continue to expand in the near term, but perhaps more slowly than its long-term average rate. Leading Indicators.Five of the ten indicators that make up the leading index increased in February. The positive contributors - beginning with the largest positive contributor – were average weekly initial claims for unemployment insurance (inverted), stock prices, real money supply*, vendor performance, and manufacturers’ new orders for consumer goods and materials*. The negative contributors - beginning with the largest negative contributor – were average weekly manufacturing hours, interest rate spread, building permits, and index of consumer expectations. The manufacturers’ new orders for nondefense capital goods* held steady in February. The leading index now stands at 115.6 (1996=100). Based on revised data, this index decreased 0.3 percent in January and increased 0.3 percent in December. During the six-month span through February, the leading index decreased 0.1 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent). Coincident Indicators.All four indicators that make up the coincident index increased in February. The positive contributors to the index - beginning with the largest positive contributor - were personal income less transfer payments*, employees on nonagricultural payrolls, industrial production, and manufacturing and trade sales*. The coincident index now stands at 119.6 (1996=100). Based on revised data, this index decreased 0.6 percent in January and increased 1.3 percent in December. During the six-month period through February, the coincident index increased 1.6 percent. Lagging Indicators. The lagging index stands at 99.6 (1996=100) in February, with six of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were commercial and industrial loans outstanding*, ratio of consumer installment credit to personal income*, average prime rate charged by banks, average duration of unemployment (inverted), change in CPI for services, and ratio of manufacturing and trade inventories to sales*. The negative contributor was change in labor cost per unit of output*. Based on revised data, the lagging index increased 1.0 percent in January and decreased 0.9 percent in December. 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 March 16, 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 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.