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Released: Thursday, September 20, 2007

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 0.3 percent in August.

  • The leading index fell sharply in August, and real money supply (M2) was the only large positive contributor in this month. However, the level of the leading index in June and July was revised up slightly as actual data for manufacturers' new orders became available. The leading index increased 0.5 percent from February to August (a 1.0 percent annual rate), and the six-month diffusion index suggests that the strengths among the components became slightly more widespread in July and August.
  • The coincident index increased again in August and it continues to rise on a somewhat slower, but steady, trend. It grew 0.9 percent from February to August (a 1.8 percent annual rate), down from the 2.5 percent average annual rate in 2006. Industrial production and employment have been making the largest positive contributions to the coincident index in recent months, but employment fell slightly in August. Despite slower growth, the strengths among the coincident indicators continued to be very widespread in recent months.
  • The leading index has been alternating between monthly increases and decreases in 2007, and, as a result, it is essentially at the same level as in January 2007. In August, the largest negative contributions to the leading index were due to consumer expectations, initial claims for unemployment insurance (inverted), and stock prices. Housing permits and interest rate spread continued to make negative contributions through August. At the same time, real GDP grew at a 2.3 percent average annual rate in the first half of the year (including a 0.6 percent rate in the first quarter and a 4.0 percent rate in the second quarter). The current behavior of the leading index suggests that economic growth is likely to continue in the near term, albeit at a slow pace.

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

The leading index now stands at 137.8 (1996=100). Based on revised data, this index increased 0.7 percent in July and decreased 0.1 percent in June. During the six-month span through August, the leading index increased 0.5 percent, with six out of ten components advancing (diffusion index, six-month span equals 60 percent).

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

The coincident index now stands at 124.6 (1996=100). This index increased 0.2 percent in July and increased 0.1 percent in June. During the six-month period through August, the coincident index increased 0.9 percent.

LAGGING INDICATORS. The lagging index stands at 129.4 (1996=100) in August, with three of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were commercial and industrial loans outstanding*, average duration of unemployment (inverted), and ratio of consumer installment credit to personal income*. The negative contributors were change in CPI for services and change in labor cost per unit of output*. The ratio of manufacturing and trade inventories to sales* and average prime rate charged by banks* held steady in August. Based on revised data, the lagging index increased 0.2 percent in July and increased 0.5 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 19, 2007. 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.

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

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