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Released: Thursday, August 17, 2006

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

  • The leading index decreased slightly in July. From January to July, the leading index fell by 0.7 percent (a -1.4 percent annual rate), but it is still 0.9 percent above its July 2005 level. In addition, weaknesses and strengths among the leading indicators have become roughly balanced in recent months. Declining housing permits continued to be the largest negative contributor over this period.
  • The coincident index increased again in July. This measure of current economic activity has been increasing steadily since September 2005, but its growth moderated slightly in the second quarter of 2006 and in July. From January to July, the coincident index grew 1.1 percent (a 2.1 percent annual rate), and employment and industrial production continued to be the major contributors to this growth.
  • The leading index has decreased in four of the last six months and the leading index has fallen below its most recent high reached in January. At the same time, real GDP grew at a 2.5 percent annual rate in the second quarter, following a 5.6 percent gain in the first quarter. The behavior of the leading index so far suggests that slow to moderate economic growth should continue in the second half of the year.

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

The leading index now stands at 138.1 (1996=100). Based on revised data, this index increased 0.1 percent in June and decreased 0.5 percent in May. During the six-month span through July, the leading index decreased 0.7 percent, with four out of ten components advancing (diffusion index, six-month span equals forty-five 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, employees on nonagricultural payrolls, manufacturing and trade sales*, and personal income less transfer payments*.

The coincident index now stands at 123.1 (1996=100). This index increased 0.2 percent in June and increased 0.1 percent in May. During the six-month period through July, the coincident index increased 1.1 percent.

LAGGING INDICATORS. The lagging index now stands at 123.7 (1996=100) in July, with one of the seven components advancing. The positive contributor to the index was the average prime rate charged by banks. The negative contributors - beginning with the largest negative contributor - were average duration of unemployment (inverted), commercial and industrial loans outstanding*, and change in CPI for services. The ratio of manufacturing and trade inventories to sales*, change in labor cost per unit of output*, and ratio of consumer installment credit to personal income** held steady in July. Based on revised data, the lagging index increased 0.5 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 16, 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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