The US Leading Index Declines in March Following a Small Increase in February
Press release from the issuing company
Apr. 21, 2005 -- The Conference Board announced today that the U.S. leading index decreased 0.4 percent, the coincident index increased 0.2 percent and the lagging index decreased 0.1 percent in March.
The leading index declined in March following a small increase in February. The leading index has been essentially flat since October 2004 following a small decline over the previous five months. In addition, there have been more weaknesses than strengths among the components of the leading index in recent months.
The coincident index, an index of current economic activity, increased again in March. The coincident index has been increasing at a relatively steady 2.5 percent annual rate since April 2003, and the strength continues to be widespread. At the same time, the growth rate of real GDP has been fluctuating around a 4.0 percent annual rate, including 3.8 percent in the fourth quarter of 2004.
The leading index has been increasing since the end of 2001, but the upward trend has been briefly interrupted twice – once from May to October 2002 and again from June to October 2004. The recent flatness of the leading index (compared to its long-term trend of 1.5 percent growth) is consistent with the economy continuing to expand in the near term, but more slowly than its long-term average rate.
Leading Indicators. Two of the ten indicators that make up the leading index increased in March. The positive contributors – beginning with the largest positive contributor – were interest rate spread and manufacturers’ new orders for consumer goods and materials*. The negative contributors – beginning with the largest negative contributor – were average weekly initial claims for unemployment insurance (inverted), building permits, vendor performance, average weekly manufacturing hours, real money supply*, index of consumer expectations, stock prices, and manufacturers’ new orders for nondefense capital goods*.
The leading index now stands at 115.1 (1996=100). This index increased 0.1 percent in February and decreased 0.3 percent in January. During the six-month span through March, the leading index decreased 0.3 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty-five percent).
Coincident Indicators. All four indicators that make up the coincident index increased in March. 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 119.5 (1996=100). Based on revised data, this index increased 0.1 percent in February and decreased 0.5 percent in January. During the six-month period through March, the coincident index increased 1.5 percent.
Lagging Indicators. The lagging index stands at 99.4 (1996=100) in March, with four of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were change in CPI for services, average prime rate charged by banks, ratio of manufacturing and trade inventories to sales*, and ratio of consumer installment credit to personal income*. The negative contributors – beginning with the largest negative contributor – were commercial and industrial loans outstanding*, average duration of unemployment (inverted), and change in labor cost per unit of output*. Based on revised data, the lagging index increased 0.3 percent in February and increased 1.0 percent in January.
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 April 20, 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, 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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