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Benchmark Revisions - November 2006

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Released: Thursday, June 9, 2005

The July 2005 release of The Conference Board’s Japan Leading Economic Indicators and Related Composite Indexes will incorporate benchmark revisions.

The benchmark revisions bring the composite indexes up-to-date with revisions in their component data and update the standardization factors used in their calculation. This is a maintenance procedure typically done once a year. These maintenance revisions do not change the cyclical properties of the indexes and their effects are very small, as expected.

Also, beginning with the July 2005 release, the components of the Coincident Index will be revised. In the past The Conference Board used real retail sales, real wholesale sales, and real manufacturing sales as separate components. It is now possible to develop a broader measure of sales which is similar to the real manufacturing and trade sales series used in the U.S. Coincident Index. (As part of this benchmark an error in the price index that was used to deflate manufacturing sales was also corrected.) The new sales series will be used as a single new component in the Coincident Index for Japan (see note on page 2 for details). The new Coincident Index is better correlated with other measures of current economic activity such as industrial production and GDP, especially since 2000.

These changes are made possible because of new research at The Conference Board (TCB). The Conference Board continuously monitors the behavior and performance of the composite indexes and their components and periodically makes changes to keep the indexes timely and accurate. The revision in the Coincident Index is consistent with long-standing TCB policy to make changes to the indexes when research indicates that substantial improvements are possible.

For more information on these revisions, visit our web site at www.conference-board.org/economics/bci/.

The Conference Board reports today that the leading index for Japan decreased 0.3 percent, while the coincident index increased 0.8 percent in April.

  • The leading index declined in April, and March’s previously reported increase was revised down to no change. In addition, the balance of strengths and weaknesses among the leading indicators has become somewhat less favorable in the last two months. Despite this month’s decline, the growth rate of the leading index has continued to fluctuate in the 0.0 to 1.0 percent (annual rate) range in recent months.
  • • Real GDP increased sharply in the first quarter of 2005 (a 5.3 percent annualized rate) following a small increase (0.6 percent) in the fourth quarter of 2004 and a small decline (0.9 percent) in the previous two quarters. The leading index increased rapidly in the first half of 2004, declined in the second half of 2004, and has remained essentially unchanged since October 2004. The recent behavior of the leading index suggests the economy will continue growing, but more slowly than in the first quarter.

Leading Indicators.Five of the ten components that make up the leading index increased in April. The positive contributors to the index – in order from the largest positive contributor to the smallest – include new orders for machinery and construction*, the index of overtime worked, the Tankan business conditions survey, the (inverted) business failures, and real money supply. Dwelling units started, the six month growth rate of labor productivity, stock prices, yield spread, and real operating profits* declined in April.

With the decrease of 0.3 percent in April, the leading index now stands at 98.5 (1990=100). Based on revised data, this index was unchanged in March and increased 0.1 percent in February. During the six-month span through April, the index decreased 0.1 percent, and four of ten components advanced (diffusion index, six-month span equals 40.0 percent).

Coincident Indicators. All six components that make up the coincident index increased in April. The positive contributors to the index – in order from the largest positive contributor to the smallest – include number of employed persons, industrial production, real wholesale sales, real retail sales, real manufacturing sales*, and wage and salary income*.

With the 0.8 percent increase in April, the coincident index now stands at 101.5 (1990=100). Based on revised data, this index declined 0.5 percent in March and declined 0.7 percent in February. During the six-month span through April, the index increased 1.1 percent, and five of the six components advanced (diffusion index, six-month span equals 83.3 percent).

Data Availability.The data series used to compute the two composite indexes reported in this release are those available “as of” 5:00 P.M. ET June 8, 2005. Some series are estimated as noted below.

* The series in the leading index that are based on The Conference Board estimates are real operating profits, dwelling units started, and six month growth rate of labor productivity. The series in the coincident index that are based on The Conference Board estimates are real manufacturing sales and wage and salary income.

Notes: Starting with the July 2005 press release, The Conference Board uses Real Manufacturing and Trade Sales as a component of the coincident index. This will replace the individual sales series previously used. Before the aggregation is done, the individual sales series will be deflated to adjust for changes in the price levels. Real wholesale sales and real manufacturing sales are deflated with the wholesale price for manufacturing goods. (As part of this revision an error in the price index that was used to deflate manufacturing sales was also corrected.) Real retail sales are deflated with the consumer price index. The resulting three deflated series are added together to provide new real manufacturing and trade sales data. The Coincident Index is now more consistent with other measures of economic activity, such as industrial production and GDP (particularly after 2001).

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

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