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Benchmark Revisions - November 2006

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Released: Thursday, October 5, 2006

The next release of The Conference Board's Japan Leading Economic Indicators and Related Composite Indexes, scheduled for November 7, 2006, will incorporate benchmark revisions to bring the history of the composite indexes up-to-date with data revisions in their existing components and update the standardization factors used in their calculation. This is a maintenance procedure typically done once a year, which usually does not change the cyclical properties of the indexes and has, as expected, relatively small effects. For more details, please see page 3.

The Conference Board reports today that the leading index for Japan decreased 0.4 percent, while the coincident index increased 0.3 percent in August.

  • The leading index fell in August for the second consecutive month, but there were upward revisions to the leading index in the previous several months as actual data for real operating profits for the second quarter of 2006 became available. With this month's decline, the level of the leading index is now -0.9 percent below its most recent peak in April, and the strengths among the leading indicators have become less widespread in recent months.
  • The coincident index increased in August after being essentially flat since the beginning of 2006. At the same time, real GDP growth slowed to a 2.1 percent annual rate in the first half of 2006, slightly down from the 2.6 percent rate in the second half of 2005. The behavior of the leading index in recent months suggests that the economy is likely to grow more slowly in the near term.

LEADING INDICATORS. Three of the ten components that make up the leading index increased in August. The positive contributors to the index - in order from the largest positive contributor to the smallest — include stock prices, real operating profits*, and the six month growth rate of labor productivity. The negative contributors — in order from the largest negative contributor to the smallest — include the index of overtime worked, the (inverted) business failures*, interest rate spread, real money supply, and the new orders for machinery and construction component*. Dwelling units started and the Tankan business conditions survey remained unchanged in August.

With the decrease of 0.4 percent in August, the leading index now stands at 101.4 (1990=100). Based on revised data, this index decreased 0.5 percent in July and increased 0.2 percent in June. During the six-month span through August, the index decreased 0.2 percent, and three of the ten components advanced (diffusion index, six-month span equals 35.0 percent).

COINCIDENT INDICATORS. All four components that make up the coincident index increased in August. The positive contributors to the index — in order from the largest positive contributor to the smallest — include industrial production, number of employed persons, the retail, wholesale, and manufacturing sales* component, and number of employed persons.

With the increase of 0.3 percent in August, the coincident index now stands at 106.3 (1990=100). Based on revised data, this index remained unchanged in July and decreased 0.1 percent in June. During the six-month span through August, the index increased 0.4 percent, and two of the four components advanced (diffusion index, six-month span equals 50.0 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 October 3, 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: Since the July 2005 press release, Real Retail, Wholesale, and Manufacturing Sales has been used as a component of the coincident index. This series replaces the individual sales series previously used. Before the aggregation is done, the individual sales series is 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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