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Benchmark Revisions - November 2006

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Released: Tuesday, October 7, 2008

The Conference Board reports today that both the leading and coincident indexes for Japan decreased 0.6 percent in August.

  • The leading index continued to decline in August, but there were slight upward revisions to the index levels between March and July as actual data for the operating profits component for the second quarter became available. The six-month growth rate of labor productivity, index of overtime worked in the manufacturing sector, stock prices, and the Tankan business conditions survey all made significant negative contributions to the leading index. With this month's decline, the leading index fell 2.5 percent (about a -8.2 percent annual rate) from February to August 2008, the largest decline since late 2001. In addition, the weaknesses among the leading indicators continued to be very widespread in recent months.
  • The coincident index, a measure of current economic activity, also declined in August. Industrial production and the real retail, wholesale, and manufacturing sales* components made very large negative contributions to the index. With this decrease, the six-month growth rate in the coincident index continued to fall, declining to -2.2 percent (a -3.3 percent annual rate) in the six-month period through August, well below the 1.0 percent annual rate of increase reached in the second half of 2007. In addition, all four components in the coincident index have been declining in the last six months.
  • The leading index has been on a general downtrend for more than a year now and its rate of decline continued to accelerate in recent months. During this period, weaknesses in both leading and coincident indexes have been widespread. At the same time, real GDP grew at a 0.3 percent average annual rate in the first half of 2008 (including a -2.4 percent rate in the second quarter, the largest quarterly decline in the past seven years), down from a 1.7 percent average annual rate during the second half of 2007. The continued widespread declines in both the leading and coincident indexes suggest that slow economic growth in Japan is likely to persist, and the risks for further economic weakness remain elevated in the near term.

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

With the decrease of 0.6 percent in August, the leading index now stands at 81.3 (1990=100). Based on revised data, this index decreased 0.2 percent in July and decreased 1.0 percent in June. During the six-month span through August, the index decreased 2.5 percent, and three of the ten components advanced (diffusion index, six-month span equals 30.0 percent).

COINCIDENT INDICATORS. Only one of the four components that make up the coincident index decreased in August. The positive contributor was wage and salary income*. Industrial production and the retail, wholesale, and manufacturing sales* component declined in August, while the number of employed persons remained unchanged. With the decrease of 0.6 percent in August, the coincident index now stands at 106.5 (1990=100). Based on revised data, this index decreased 0.2 percent in July and decreased 0.8 percent in June. During the six-month span through August, the index decreased 2.2 percent, and none of the four components advanced (diffusion index, six-month span equals 0.0 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 6, 2008. 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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