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Released: Thursday, October 18, 2007

The Conference Board announced today that the U.S. leading index increased 0.3 percent, the coincident index increased 0.2 percent and the lagging index increased 0.5 percent in September.

  • The leading index increased in September, the third increase in the last six months, and these increases and decreases have been alternating and offsetting each other. As a result, the leading index is now at the same level as in March 2007. In September, building permits made the largest negative contribution which was offset by large positive contributions from vendor performance, stock prices, and unemployment insurance claims (inverted). In the period from March to September, gains in real money supply and stock prices have offset the weakness from the housing permits and interest rate spread components.
  • The coincident index increased again in September, and it grew 1.0 percent from March to September (a 1.9 percent annual rate), below its long-term average growth rate (about a 2.6 percent annual rate measured over 1959-2007), and down from the 2.5 percent average annual rate in 2006. Despite slower growth, the strengths among the coincident indicators continued to be very widespread in recent months. At the same time, the lagging index continued to increase. The gains in the lagging index have been larger than those in the coincident index recently, and as a result, the ratio of the coincident to lagging indexes decreased in four of the last six months. (This ratio tends to have long leads in the business cycle).
  • The leading index has been essentially flat throughout 2007, and the six-month diffusion index suggests that the strengths among the leading indicators continue to be only slightly more widespread than weaknesses in recent months. At the same time, real GDP grew at a 2.2 percent average annual rate in the first half of the year, only slightly up from the 1.6 percent average rate in the second half of 2006. The current behavior of the composite indexes suggests that slow economic growth is likely to continue in the near term.

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

The leading index now stands at 137.9 (1996=100). Based on revised data, this index decreased 0.8 percent in August and increased 0.7 percent in July. During the six-month span through September, the leading index was unchanged, with six out of ten components advancing (diffusion index, six-month span equals 60 percent).

COINCIDENT INDICATORS. All four indicators that make up the coincident index increased in September. 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 125 (1996=100). This index increased 0.1 percent in August and increased 0.3 percent in July. During the six-month period through September, the coincident index increased 1.0 percent.

LAGGING INDICATORS. The lagging index stands at 129.9 (1996=100) in September, with four 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), change in CPI for services, and ratio of consumer installment credit to personal income*. The negative contributors — beginning with the larger negative contributor — were average prime rate charged by banks and change in labor cost per unit of output*. The ratio of manufacturing and trade inventories to sales** held steady in September. Based on revised data, the lagging index increased 0.3 percent in August and increased 0.1 percent in July.

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 October 17, 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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