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Benchmark Revisions - November 2006

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Released: Tuesday, November 6, 2007

The Conference Board reports today that the leading index for Japan decreased 1.3 percent and the coincident index decreased 0.3 percent in September.

  • The leading index declined sharply in September, the third consecutive decrease, and the weakness in September was concentrated in the dwelling units started and Tankan business conditions components. With September's decline, the leading index continued to fall and it decreased 1.4 percent from March to September (a -2.8 percent annual rate). However, the strengths and weaknesses among the leading indicators have been roughly balanced in the last two months.
  • The coincident index also declined in September, and the wage and salary income component was the only positive contributor to the coincident index this month. Despite this month's decline, the six-month growth rate of the coincident index has remained within the 0.5 to 1.5 percent range (about a 1.5 — 2.5 percent annual rate) since early 2006.
  • The leading index grew rapidly through mid-2006, reaching a six-month growth rate of about 5.0 percent (annual rate) in the first half of 2006, but its growth rate has been gradually declining, and became negative in early 2007. However, the weakness has not been consistently widespread so far, and it has been mainly concentrated in housing, stock prices, and new orders for machinery and construction. At the same time, real GDP declined in the second quarter at a -1.2 percent annual rate. The behavior of the composite indexes so far suggest that economic activity is likely to grow in the near term, but at a sluggish pace, and continued weakness among the leading indicators should be monitored closely in the coming months.

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

With the decrease of 1.3 percent in September, the leading index now stands at 85.6 (1990=100). Based on revised data, this index decreased 0.7 percent in August and decreased 0.9 percent in July. During the six-month span through September, the index decreased 1.4 percent, and six of the ten components advanced (diffusion index, six-month span equals 65.0 percent).

COINCIDENT INDICATORS. Only one of the four components that make up the coincident index increased in September. The positive contributor was wage and salary income*. Number of employed persons, industrial production, and the retail, wholesale, and manufacturing sales* component declined in September.

With the decrease of 0.3 percent in September, the coincident index now stands at 108.5 (1990=100). Based on revised data, this index increased 0.2 percent in August and declined 0.1 percent in July. During the six-month span through September, the index increased 0.8 percent, and three of the four components advanced (diffusion index, six-month span equals 75.0 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 November 5, 2007. 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.

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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