Feb. 17, 2005 -- The Conference Board announced today that the U.S. leading index decreased 0.3 percent, the coincident index remained unchanged and the lagging index increased 0.3 percent in January.
The leading index declined in January, but this follows increases in the previous two months, and there were significant upward revisions to the leading index from August to December. In addition, there has been more widespread strength in the leading indicators in recent months, with weakness concentrated in vendor performance and the interest rate spread.
The coincident index, an index of current economic activity, held steady in January, and the strength in the coincident index continues to be widespread. At the same time, the growth rate of real GDP has been fluctuating around a 3.5 percent annual rate since the second quarter of 2004, including 3.1 percent in the fourth quarter.
The leading index was on a rising trend from early 2003 to the middle of 2004, but has now fluctuated around a flat trend over the last six or seven months (which is below its long-term trend of a 1.5 percent annual rate). The recent behavior of the leading index is consistent with the economy continuing to expand in the near term, but more slowly than its long-term average growth rate.
Leading Indicators.Four of the ten indicators that make up the leading index increased in January. The positive contributors - beginning with the largest positive contributor – were average weekly manufacturing hours, real money supply*, building permits, and manufacturers’ new orders for nondefense capital goods*. The negative contributors - beginning with the largest negative contributor – were vendor performance, index of consumer expectations, stock prices, interest rate spread, manufacturers’ new orders for consumer goods and materials*. The contribution of average weekly initial claims for unemployment insurance (inverted) remained unchanged.
The leading index now stands at 115.6 (1996=100). Based on revised data, this index increased 0.3 percent in December and increased 0.3 percent in November. During the six-month span through January, the leading index decreased 0.3 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent).
Coincident Indicators.Three out of four indicators that make up the coincident index increased in January. The positive contributors to the index - beginning with the largest positive contributor - were employees on nonagricultural payrolls, manufacturing and trade sales*, and industrial production. The negative contributor was personal income less transfer payments*.
The coincident index now stands at 119.6 (1996=100). This index increased 1.1 percent in December and increased 0.1 percent in November. During the six-month period through January, the coincident index increased 1.8 percent.
Lagging Indicators. The lagging index stands at 98.6 (1996=100) in January, 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 manufacturing and trade inventories to sales*, and change in labor cost per unit of output*. The negative contributor was ratio of consumer installment credit to personal income*. The average duration of unemployment (inverted), and change in CPI for services* held steady in January. Based on revised data, the lagging index decreased 0.7 percent in December and decreased 0.2 percent in November.
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 February 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.
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