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Released: Thursday, June 22, 2006

The Conference Board announced today that the U.S. leading index decreased 0.6 percent, the coincident index increased 0.1 percent and the lagging index increased 0.2 percent in May.

  • The leading index decreased sharply in May, the third decline in the last six months. The largest negative contributors to the leading index in May were initial claims for unemployment insurance (inverted) and the index of consumer expectations. From November to May, the leading index fell by 0.2 percent and declining housing permits made the largest negative contribution over this period. In addition, the strengths and weaknesses among the leading indicators have gradually become more balanced in recent months.
  • The coincident index, a measure of current economic activity, continued to increase steadily as it has since September 2005. The six month growth rate of the coincident index is now fluctuating within a range of 2.5 to 3.5 percent annual rate in recent months, up from an average growth of about 2.0 percent in the fourth quarter of 2005. From November to May, the coincident index grew 1.2 percent (a 2.5 percent annual rate) and all four components contributed about equally to this growth.
  • After a pick up at the end of 2005 and beginning of 2006, the leading index has fallen slightly below its level at the end of 2005. Correspondingly, economic activity and real GDP growth (a 5.3 percent annual rate) picked up in the first quarter of 2006. But, the current behavior of the leading index so far suggests the rapid pace of economic activity in the first quarter is unlikely to be sustained and economic growth should continue, but at a slow to moderate rate in the near term.

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

The leading index now stands at 137.9 (1996=100). Based on revised data, this index decreased 0.1 percent in April and increased 0.4 percent in March. During the six-month span through May, the leading index decreased 0.2 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent).

COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in May. The positive contributors to the index - beginning with the largest positive contributor - were personal income less transfer payments*, employees on nonagricultural payrolls, and manufacturing and trade sales*. The negative contributor was industrial production.

The coincident index now stands at 122.7 (1996=100). This index increased 0.2 percent in both April and March. During the six-month period through May, the coincident index increased 1.2 percent.

LAGGING INDICATORS. The lagging index now stands at 123.0 (1996=100) in May, 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 prime rate charged by banks, change in labor cost per unit of output*, ratio of manufacturing and trade inventories to sales*, 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 CPI for services. Based on revised data, the lagging index increased 0.2 percent in both April and March.

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 June 21, 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.

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

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