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Released: Thursday, August 18, 2005

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

  • The leading index increased slightly in July following a sharp increase in June, which keeps it on a slightly rising trend. The leading index has increased at a 2.1 percent (corrected - see below) annual rate over the last six months, but this is down from a peak of about 10.0 percent growth at the end of 2003. The strengths among the components of the leading index have become somewhat more widespread in the last two months.
  • The coincident index, a measure of current economic activity, increased again in July. 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 in the 3.5 to 4.0 percent annual rate range over the last year and a half.
  • The leading index increased rapidly through the first quarter of 2004, and although it continues to rise, its growth has slowed steadily through the first half of 2005. The leading index has been fluctuating around a 2.0 percent average growth rate since the end of 2004. This behavior is consistent with the economy continuing to expand moderately in the near term.

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

The leading index now stands at 138.2 (corrected - see below) (1996=100). Based on revised data, this index increased 1.2 percent in June and remained unchanged in May. During the six-month span through July, the leading index increased 1.0 percent (corrected - see below), with six out of ten components advancing (diffusion index, six-month span equals sixty 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 employees on nonagricultural payrolls, manufacturing and trade sales*, personal income less transfer payments*, and industrial production.

The coincident index now stands at 120.8 (1996=100). This index increased 0.3 percent in June and increased 0.2 percent in May. During the six-month period through July, the coincident index increased 1.1 percent.

Lagging Indicators.The lagging index stands at 120.0 (1996=100) in July, 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, commercial and industrial loans outstanding*, average prime rate charged by banks, and ratio of consumer installment credit to personal income*. The negative contributors – beginning with the largest negative contributor – were average duration of unemployment (inverted), and change in labor cost per unit of output*. The ratio of manufacturing and trade inventories to sales** held steady in July. Based on revised data, the lagging index increased 0.3 percent in June and increased 0.3 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 17, 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.

Note: The July figure for average weekly initial claims for unemployment insurance has been corrected. The monthly percent change in the leading index has not been affected by this correction.

Updated at 2:00 p.m. on August 18, 2005.

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

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