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Benchmark Revisions - November 2006

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Released: Monday, July 10, 2006

The Conference Board reports today that the leading index for Japan decreased 0.4 percent and the coincident index increased 0.1 percent in May.

  • The leading index fell in May, offsetting a similar increase in April. But April's increase was revised up as a result of data revisions in housing starts, new orders for machinery and construction, and index of overtime worked. With May’s decline, the growth rate of the leading index has slowed to about a 2.0 – 3.0 percent annual rate in recent months, down from the 4.0 – 5.0 percent rate through February. The weakness in the leading index was widespread in April with stock prices making the largest negative contribution, but the strengths and weaknesses among the leading indicators have remained somewhat balanced in recent months.
  • The coincident index increased slightly in May, with the employment component being the major positive contributor to this month’s gain. The coincident index has been on a rising trend since the beginning of 2005, although its growth rate has moderated in recent months. At the same time, real GDP grew at a (revised) 3.1percent annual rate in the first quarter of 2006, slightly down from the 4.5 percent rate in the fourth quarter of 2005. The recent behavior of the leading index suggests that the economy is likely to grow at a moderate rate in the near term.

LEADING INDICATORS. Three 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 six month growth rate of labor productivity, the new orders for machinery and construction component*, and the Tankan business conditions survey. The negative contributors – in order from the largest negative contributor to the smallest – include stock prices, the index of overtime worked, real money supply, dwelling units started, the (inverted) business failures*, interest rate spread, and real operating profits*.

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* component declined in May.

With the increase of 0.1 percent in May, the coincident index now stands at 106.2 (1990=100). Based on revised data, this index increased 0.4 percent in April and decreased 0.2 percent in March. During the six-month span through May, the index increased 0.6 percent, and all four components advanced (diffusion index, six-month span equals 100.0 percent).

DATA AVAILABILITY AND NOTES. The data series used to compute the two composite indexes reported in this release are those available "as of" 5:00 P.M. ET May 8, 2006. 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, new orders for machinery, and the 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.

NOTE: 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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