The U.S. Leading Index Falls Again for the Third Consecutive Month

Press Release / News

Sept. 23, 2004

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The Conference Board announced today that the U.S. leading index decreased 0.3 percent, the coincident index increased 0.2 percent and the lagging index decreased 0.1 percent in August.

The leading index fell again in August, the third consecutive decline, and the weakness in the last three months has become more widespread. However, these declines in the leading index have not been long enough nor deep enough to signal an end to the upward trend in the leading index underway since March 2003.
The coincident index increased again in August, and growth continues to be widespread. At the same time, real GDP growth slowed to a 2.8 percent annual rate in the second quarter of 2004, down from a 5.0 percent average rate over the preceding four quarters.
While the leading index is still on an upward trend, its current growth rate has slowed into the range of 1.0 to 2.0 percent (annual rate). This compares to an average growth rate of the leading index since 1959 of about 1.5 percent and a 3.5 percent average growth rate of real GDP. The slower recent growth rate of the leading index is consistent with real GDP continuing to increase, but at or slightly below its long-term trend.

LEADING INDICATORS. Three of the ten indicators that make up the leading index increased in August. The positive contributors - beginning with the largest positive contributor – were manufacturers’ new orders for consumer goods and materials*, real money supply*, and average weekly initial claims for unemployment insurance (inverted). The negative contributors - beginning with the largest negative contributor – were interest rate spread, building permits, index of consumer expectations, manufacturers’ new orders for nondefense capital goods*, vendor performance, and stock prices.

The leading index now stands at 115.7 (1996=100). Based on revised data, this index decreased 0.3 percent in August and decreased 0.3 percent in July. During the six-month span through August, the leading index increased 0.7 percent, with six out of ten components advancing (diffusion index, six-month span equals 60 percent).

COINCIDENT INDICATORS. All four indicators that make up the coincident index increased in August. The positive contributors to the index - beginning with the largest positive contributor - were employees on nonagricultural payrolls, personal income less transfer payments*, manufacturing and trade sales*, and industrial production.

The coincident index now stands at 117.8 (1996=100). This index increased 0.2 percent in August and increased 0.2 percent in July. During the six-month period through August, the coincident index increased 1.3 percent.

LAGGING INDICATORS. The lagging index stands at 98.2 (1996=100) in August, with four of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were average prime rate charged by banks, change in labor cost per unit of output*, ratio of consumer installment credit to personal income*, and ratio of manufacturing and trade inventories to sales*. The negative contributors were commercial and industrial loans outstanding*, average duration of unemployment (inverted), and change in CPI for services. Based on revised data, the lagging index decreased 0.1 percent in August and increased 0.6 percent in July.

DATA AVAILABILITY AND NOTES. The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available “as of” 12 Noon on September 22, 2004. Some series are estimated as noted below.

* Series in the leading index that are based on The Conference Board estimates are manufacturers’ new orders for consumer goods and materials, manufacturers’ new orders for nondefense capital goods, and the personal consumption expenditure deflator for money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, and the personal consumption expenditure deflator for commercial and industrial loans outstanding.

The procedure used to estimate the current month’s personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month’s consumer price index when it is available before the release of the U.S. Leading Economic Indicators.

Effective with the September 18, 2003 release, the method for calculating manufacturers’ new orders for consumer goods and materials (A0M008) and manufacturers’ new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.

Effective with the January 22, 2004 release a programming error in the calculation of the leading index -- in place since January 2002 -- has been corrected. The cyclical behavior of the leading index was not affected by either the calculation error or its correction, but the level of the index in the 1959-1996 period is slightly higher.

The next release is scheduled for October 21, Thursday at 10 A.M. ET.

For further information contact:
Kenneth Goldstein
1 212 339 0331
ken.goldstein@conference-board.org

THESE DATA ARE FOR ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION, PUBLISHING, DATABASING, OR PUBLIC POSTING WITHOUT EXPRESS WRITTEN PERMISSION.