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Released: Thursday, September 22, 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 decreased 0.1 percent in August.

  • The leading index decreased slightly in August, its second consecutive fall. As actual and revised data for the manufacturing new orders components became available, July’s slight increase was revised down to a small decrease and there were small downward revisions to the previous months. In August, the main negative contributor to the leading index was the index of consumer expectations. The strengths and weaknesses in the leading indicators have been somewhat balanced but much of the strength in the leading index in recent months comes from the interest rate spread. (The economic effects of Hurricane Katrina are not reflected in the August values.)
  • The coincident index, a measure of current economic activity, increased again in August. The coincident index has been increasing at a relatively steady 2.5 percent annual rate since April 2003, but its growth rate has moderated in recent months. The strength among the coincident indicators continues to be widespread.
  • 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 growth rate of the leading index has slowed down from a peak growth of about 10.0 percent at the end of 2003, and it is now fluctuating in the 0.5 to 1.5 percent annual rate range in recent months. At the same time, the growth rate of real GDP has slowed to a 3.3 percent annual rate in the second quarter of 2005 down from a 4.3 percent rate in the first quarter of 2004. The behavior of the leading index (pre-Hurricane Katrina) is consistent with the economy continuing to expand more moderately in the near term.

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

The leading index now stands at 137.6 (1996=100). Based on revised data, this index decreased 0.1 percent in July and increased 1.1 percent in June. During the six-month span through August, the leading index increased 0.4 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent).

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

The coincident index now stands at 121.1 (1996=100). This index increased 0.1 percent in July and increased 0.4 percent in June. During the six-month period through August, the coincident index increased 1.2 percent.

Lagging Indicators. The lagging index stands at 120.0 (1996=100) in August, with four of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were average prime rate charged by banks, commercial and industrial loans outstanding*, ratio of consumer installment credit to personal income*, and ratio of manufacturing and trade inventories to sales*. The negative contributors – beginning with the largest negative contributor – were average duration of unemployment (inverted), change in CPI for services, and change in labor cost per unit of output*. Based on revised data, the lagging index increased 0.3 percent in July and increased 0.2 percent in June.

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 September 21, 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.

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

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