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Released: Thursday, August 19, 2004

The Conference Board announced today that the U.S. leading index decreased 0.3 percent, the coincident index increased 0.1 percent and the lagging index increased 0.5 percent in July.

  • The leading index fell in July, the second consecutive decline, and the weakness in the last two months was widespread. Although it is too soon to conclude that these declines end the upward trend in the leading index underway since March 2003, this weakness has slowed the growth rate of the leading index into the range of 1.0 to 2.0 percent (annual rate).
  • The coincident index increased in July following no change in June, and growth continues to be widespread. At the same time, real GDP growth slowed to a 3.0 percent annual rate in the second quarter of 2004, down from a 5.0 percent average rate over the preceding four quarters.
  • " The average growth rate of the leading index since 1959 has been about 1.5 percent (annual rate) versus a 3.5 percent average growth rate of real GDP. The slower growth of the leading index so far this year is consistent with a moderate rate of real GDP growth in the near term.

Leading Indicators. Four of the ten indicators that make up the leading index increased in July. The positive contributors - beginning with the largest positive contributor - were building permits, index of consumer expectations, average weekly manufacturing hours, and manufacturers' new orders for consumer goods and materials*. The negative contributors - beginning with the largest negative contributor - were vendor performance, interest rate spread, stock prices, average weekly initial claims for unemployment insurance (inverted), real money supply*, and manufacturers' new orders for nondefense capital goods*.

The leading index now stands at 116.0 (1996=100). Based on revised data, this index decreased 0.1 percent in June and increased 0.4 percent in May. During the six-month span through July, the leading index increased 1.0 percent, with seven out of ten components advancing (diffusion index, six-month span equals 70 percent).

Coincident Indicators. All four indicators that make up the coincident index increased in July. The positive contributors to the index - beginning with the largest positive contributor - were industrial production, personal income less transfer payments*, manufacturing and trade sales*, and employees on nonagricultural payrolls.

The coincident index now stands at 117.5 (1996=100). This index remained unchanged in June and increased 0.3 percent in May. During the six-month period through July, the coincident index increased 1.3 percent.

Lagging Indicators. The lagging index stands at 98.3 (1996=100) in July, with four of the seven components advancing. The positive contributors to the index - beginning with the largest positive contributor - were average duration of unemployment (inverted), commercial and industrial loans outstanding*, average prime rate charged by banks, and ratio of consumer installment credit to personal income*. The ratio of manufacturing and trade inventories to sales*, change in labor cost per unit of output*, and change in CPI for services held steady in July. Based on revised data, the lagging index remained unchanged in June and increased 0.1 percent in May.

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 August 18, 2004. 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 deflator for 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 deflator for 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.

THESE DATA ARE FOR ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION, PUBLISHING, DATABASING, OR PUBLIC POSTING WITHOUT EXPRESS WRITTEN PERMISSION.

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