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Benchmark Revisions - November 2006

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Released: Thursday, July 7, 2005

Benchmark Revisions to the Japan Composite Indexes:

This release of The Conference Board’s Japan Leading Economic Indicators and Related Composite Indexes incorporates benchmark revisions. These 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 this release, the composition of the Coincident Index is 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 real manufacturing and trade sales series is used as a single new component in the Coincident Index for Japan (see note on page 2 of the press release for further details).

The new Coincident Index is better correlated with other measures of current economic activity such as industrial production and GDP, especially since 2000. See article on dating Japan’s business cycles entitled “Japan: 1965–2004, From Rapid Expansion to the Great Stagnation,” by Victor Zarnowitz and Michael Luk in the June 2005 issue of the Business Cycle Indicators report.

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 0.2 percent, while the coincident index increased 0.1 percent in May.

  • The leading index (which as discussed in last month’s press release has incorporated a benchmark revision) fell slightly in May. With this month’s decline, the leading index has now been flat since the end of 2004, and weakness among the leading indicators has become somewhat more widespread. The essentially zero growth rate of the leading index so far this year is a slight improvement from declines in the second half of 2004, but is still well below the peak growth rate reached in the first half of 2004.
  • The coincident index increased slightly in May following a sharp gain in April. The coincident index has been extremely volatile in recent months, but has been on a slightly rising trend since mid-2003. At the same time, real GDP increased sharply in the first quarter of 2005 (a 4.9 percent annualized rate) following a small increase (0.3 percent) in the fourth quarter of 2004 and a small decline (-0.8 percent) in the previous two quarters. The continued flatness of the leading index suggests that the economy will grow in the near term, but more slowly than in the first quarter.

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

With the decrease of 0.2 percent in May, the leading index now stands at 98.0 (1990=100). Based on revised data, this index declined 0.1 percent in April and was unchanged in March. During the six-month span through May, the index increased 0.2 percent, and five of ten components advanced (diffusion index, six-month span equals 50.0 percent).

Coincident Indicators. Two of the four components that make up the coincident index increased in May. The positive contributors to the index – in order from the larger positive contributor to the smaller – include number of employed persons and wage and salary income*. Industrial production and the retail, wholesale, and manufacturing sales* declined in May.

With the 0.1 percent increase in May, the coincident index now stands at 105.1 (1990=100). Based on revised data, this index increased 0.9 percent in April and declined 0.3 percent in March. During the six-month span through May, the index increased 1.7 percent, and three of the four components advanced (diffusion index, six-month span equals 75.0 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 July 7, 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 Retail, Wholesale, and Manufacturing 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 retail, wholesale, and manufacturing 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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