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Released: Friday, January 18, 2008

Effective February 1, 2008, a technical database error that affected two components of the LEI has been corrected. The two components are 1) manufacturers' new orders for consumer goods and materials and 2) manufacturers' new orders for nondefense capital goods. The monthly change reported for December 2007 on the January 18, 2008 release, the latest available observation for the LEI, remains the same. The historical cyclical behavior of the leading index was not affected by either the database error or its correction, but the level of the index for July to December 2007 is slightly lower. The website and database have been updated with the corrected values. This document reports corrected values for all components and index values that were affected.

The Conference Board announced today that the U.S. leading index decreased 0.2 percent, the coincident index increased 0.1 percent and the lagging index increased 0.4 percent in December.

  • The leading index decreased again in December, the third consecutive decline, and it has been down in four of the last six months. Housing permits made the largest negative contribution to the index. Average working hours in manufacturing also made a large negative contribution to the index this month, followed by smaller declines in manufacturers' new orders for nondefense capital goods*, initial claims for unemployment insurance (inverted), the index of consumer expectations, and interest rate spread. With this month's decline, the leading index is down 1.2 percent (a decline of 2.5 percent annual rate) from June to December, and it is 1.8 percent below its December 2006 level. While the strengths and weaknesses among its components were roughly balanced throughout most of 2007, weaknesses have become more widespread in the last two months.
  • The coincident index increased modestly again in December, and all the components except for the industrial production index made small positive contributions this month. The coincident index increased 0.7 percent (a 1.5 percent annual rate) from June to December and the strengths among the coincident indicators remained very widespread. The coincident index, an index of current economic activity, has continued to increase on a steady upward trend, but its growth has been slowing in the fourth quarter. The lagging index increased again in December, and the ratio of coincident to lagging indexes declined again.
  • The leading index has weakened sharply since mid-2007, with widespread weakness among its components in the last two months, and it has returned to the level attained in mid-2005. However, despite the spreading weakness, the index has declined only 1.9 percent (-1.0 percent at an annual rate) from its highest level in January 2006, compared to a decrease of about 3.0 percent (-2.6 percent at an annual rate) between its previous peak in January 2000 and March 2001. In addition, real GDP grew at an average annual rate of 3.1 percent through the third quarter of 2007 (including a 4.9 percent annual rate growth in the third quarter). Taken together, the recent behavior of the composite indexes highlights increasing risks for further economic weakness, and suggest that economic activity is likely to be sluggish in the near term.

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

The leading index now stands at 135.9 (1996=100). Based on revised data, this index decreased 0.5 percent in November and decreased 0.5 percent in October. During the six-month span through December, the leading index decreased 1.2 percent, with two out of ten components advancing (diffusion index, six-month span equals 20 percent).

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

The coincident index now stands at 125.2 (1996=100). This index increased 0.1 percent in November and remained unchanged in October. During the six-month period through December, the coincident index increased 0.7 percent.

LAGGING INDICATORS. The lagging index stands at 130.6 (1996=100) in December, with five of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were average duration of unemployment (inverted), commercial and industrial loans outstanding*, change in labor cost per unit of output*, change in CPI for services, and ratio of consumer installment credit to personal income*. The negative contributor was the average prime rate charged by banks. The ratio of manufacturing and trade inventories to sales** held steady in December. Based on revised data, the lagging index increased 0.2 percent in November and increased 0.2 percent in October.

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 January 17, 2008. 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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