The Conference Board U.S. Leading Index Increases Sharply in January
Press release from the issuing company
The Conference Board announced today that the U.S. leading index increased 1.1 percent, the coincident index increased 0.2 percent and the lagging index increased 0.7 percent in January.
The leading index increased sharply in January, and it has increased in five of the last six months. The leading index increased 2.3 percent from July 2005 to January 2006 (a 4.7 percent annual rate). The strengths and weaknesses among the leading indicators were balanced through mid-2005, and the strength has become somewhat more widespread since August. The main contributors to January's large gain were initial claims for unemployment insurance (inverted), real money supply, and building permits.
The coincident index, a measure of current economic activity, increased again in January. It has been on a relatively steady upward trend since April 2003, but this trend moderated somewhat in the second half of 2005. The coincident index grew at almost a 2.1 percent rate from January 2005 to January 2006, down from about 3.0 percent in 2004, and strength among its components has been widespread in recent months.
The leading index grew strongly from mid-2003 to mid-2004, and it fluctuated around a more moderate upward trend since mid-2004. At the same time, real GDP growth slowed to a 1.1 percent annual rate in the fourth quarter of 2005 (according to advance estimates). The current behavior of the leading index suggests that the sluggish growth in the fourth quarter should not persist, and economic growth is likely to pick up in the near term.
LEADING INDICATORS. Six 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 initial claims for unemployment insurance (inverted), real money supply*, building permits, vendor performance, stock prices, and interest rate spread. The negative contributor was index of consumer expectations. The average weekly manufacturing hours, manufacturers' new orders for consumer goods and materials*, and manufacturers' new orders for nondefense capital goods* held steady in January.
The leading index now stands at 140.1 (1996=100). Based on revised data, this index increased 0.3 percent in December and increased 0.9 percent in November. During the six-month span through January, the leading index increased 2.3 percent, with nine out of ten components advancing (diffusion index, six-month span equals ninety percent).
COINCIDENT INDICATORS. Three of the 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 personal income less transfer payments*. The negative contributor was industrial production.
The coincident index now stands at 121.7 (1996=100). This index increased 0.2 percent in December and increased 0.6 percent in November. During the six-month period through January, the coincident index increased 1.0 percent.
LAGGING INDICATORS. The lagging index stands at 122.8 (1996=100) in January, with five of the seven components advancing. The positive contributors to the index - beginning with the largest positive contributor - were commercial and industrial loans outstanding*, average duration of unemployment (inverted), average prime rate charged by banks, change in labor cost per unit of output*, and ratio of consumer installment credit to personal income*. The ratio of manufacturing and trade inventories to sales*, and change in CPI for services* held steady in January. Based on revised data, the lagging index decreased 0.1 percent in December and increased 0.4 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 17, 2006. 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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