May 19, 2005 -- The Conference Board announced today that the U.S. leading index decreased 0.2 percent, the coincident index increased 0.2 percent and the lagging index increased 0.4 percent in April.
The leading index fell again in April, which is now the fourth consecutive decline because February’s small increase was revised down to a small decrease. The leading index has declined at a 1.0 percent annual rate over the last six months, and there have been more weaknesses than strengths among the components in recent months.
The coincident index, an index of current economic activity, increased again in April. 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 in the last year or two.
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 weakness of the leading index is consistent with the economy continuing to expand in the near term, but at a slower pace.
Leading Indicators.Five of the ten indicators that make up the leading index increased in April. The positive contributors – beginning with the largest positive contributor – were average weekly initial claims for unemployment insurance (inverted), building permits, average weekly manufacturing hours, manufacturers’ new orders for nondefense capital goods*, and manufacturers’ new orders for consumer goods and materials*. The negative contributors – beginning with the largest negative contributor – were index of consumer expectations, real money supply*, interest rate spread, stock prices, and vendor performance.
The leading index now stands at 114.5 (1996=100). Based on revised data, this index decreased 0.6 percent in March and decreased 0.1 percent in February. During the six-month span through April, the leading index decreased 0.5 percent, with six out of ten components advancing (diffusion index, six-month span equals sixty percent).
Coincident Indicators.Three of the four indicators that make up the coincident index increased in April. The positive contributors to the index – beginning with the largest positive contributor – were employees on nonagricultural payrolls, personal income less transfer payments*, and manufacturing and trade sales*. The negative contributor was industrial production.
The coincident index now stands at 119.6 (1996=100). This index increased 0.2 percent in March and increased 0.1 percent in February. During the six-month period through April, the coincident index increased 1.2 percent.
Lagging Indicators.. The lagging index stands at 99.7 (1996=100) in April, 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*, change in CPI for services, average prime rate charged by banks, change in labor cost per unit of output*, ratio of manufacturing and trade inventories to sales*, and ratio of consumer installment credit to personal income*. The negative contributor was average duration of unemployment (inverted). Based on revised data, the lagging index decreased 0.2 percent in March and increased 0.3 percent in February.
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 May 18, 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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