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Released: Thursday, December 22, 2005

Next month's release of the U.S. LEADING ECONOMIC INDICATORS AND RELATED COMPOSITE INDEXES will incorporate annual benchmark revisions to the composite indexes which will bring them up-to-date with revisions in the source data. The indexes are updated throughout the year, but only for the previous six months. Data revisions that fall outside of the moving six-month window are not incorporated until the January release of each year when an annual benchmark revision is made and the entire histories of the indexes are recomputed.

For more information, visit http://www.conference-board.org/economics/bci/.

The Conference Board announced today that the U.S. leading index increased 0.5 percent, the coincident index increased 0.2 percent, and the lagging index increased 0.6 percent in November.

  • The leading index increased again in November, following a large gain in October. With November’s increase, the six month growth rate of the leading index picked up to about a 3.4 percent annual rate, up from an average of about 1.9 percent (annual rate) in the first half of 2005, and strength among the leading indicators has been widespread since August. The largest contributor to November’s gain was initial claims for unemployment insurance (inverted), which returned to levels seen before the hurricanes hit the gulf region.
  • The coincident index, a measure of current economic activity, increased again in November. The coincident index has been increasing at a relatively steady 2.5 percent annual rate since April 2003, but its growth rate has moderated since June 2005. Over the last six months, the main source of growth in the coincident index has been from industrial production and employment; whereas, the personal income and manufacturing and trade sales components have made more modest positive contributions. At the same time, real GDP grew at a 4.1 percent annual rate in the third quarter of 2005, following a 3.3 percent rate in the second quarter.
  • The leading index has been fluctuating around a relatively flat trend since mid-2004, following a strong upward trend from mid-2003 to mid-2004. Despite the slowing growth of the leading index, the strengths and weaknesses were well balanced through mid-2005, and strength among the leading indicators has become somewhat more widespread in recent months. It is too early to tell whether the slowdown in the leading index has ended, and the recent behavior of the leading index is still consistent with the economy continuing to expand moderately in the near term.

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

The leading index now stands at 138.8 (1996=100). Based on revised data, this index increased 1.0 percent in October and decreased 0.7 percent in September. During the six-month span through November, the leading index increased 1.7 percent, with eight out of ten components advancing (diffusion index, six-month span equals eighty percent).

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

The coincident index now stands at 121.1 (1996=100). This index increased 0.2 percent in October and increased 0.2 percent in September. During the six-month period through November, the coincident index increased 0.7 percent.

Lagging Indicators. The lagging index stands at 122.0 (1996=100) in November, with six 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 duration of unemployment (inverted), average prime rate charged by banks, ratio of manufacturing and trade inventories to sales*, and change in labor cost per unit of output**. The ratio of consumer installment credit to personal income* held steady in November. Based on revised data, the lagging index increased 0.7 percent in October and increased 0.1 percent in September.

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 December 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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