The Conference Board U.S. Leading Index Decreased Sharply for the Second Consecutive Month

Press Release / News

Dec. 20, 2007

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The Conference Board announced today that the U.S. leading index decreased 0.4 percent, the coincident index increased 0.2 percent and the lagging index increased 0.2 percent in November.

The leading index decreased sharply for the second consecutive month in November, and it has been down in four of the last six months. Most of the leading indicators contributed negatively to the index in November, led by large declines in stock prices, initial claims for unemployment insurance (inverted), the index of consumer expectations, and real money supply (M2)*. The vendor performance diffusion index and average workweek were the primary positive contributors to the index this month. The leading index fell 1.2 percent (a decline of 2.3 percent annual rate) from May to November, the largest six-month decrease in the index in six years. However, despite continued weakness in the housing permits and interest rate spread components, the strengths among its components remained balanced with the weaknesses during the past six months.
The coincident index increased modestly in November, and all the component indicators made positive contributions to the index for this month. The index was revised slightly lower in September and October, as a result of downward data revisions to the components. The coincident index increased 0.8 percent (a 1.6 percent annual rate) from May to November and the strengths among the coincident indicators remained very widespread. The lagging index increased again in November, matching the increase in the coincident index for the month, and as a result, the coincident to lagging ratio was unchanged for November.
After having been essentially flat since early 2006, the leading index has weakened sharply in recent months, and it has declined to its lowest level since the middle of 2005. Meanwhile, the coincident index has continued to increase throughout most of this period, but its growth has moderated recently. In addition, real GDP has continued to expand, growing at an average annual rate of 3.1 percent through the third quarter of the year (including a 4.9 percent annual rate growth in the third quarter). The recent behavior of the composite indexes suggest that while slow economic growth is likely in the near term, risks for further economic weakness have increased.

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

The leading index now stands at 136.3 (1996=100). Based on revised data, this index decreased 0.5 percent in October and increased 0.1 percent in September. During the six-month span through November, the leading index decreased 1.2 percent, with five out of ten components advancing (diffusion index, six-month span equals 50 percent).

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

The coincident index now stands at 125.1 (1996=100). This index decreased 0.1 percent in October and increased 0.1 percent in September. During the six-month period through November, the coincident index increased 0.8 percent.

LAGGING INDICATORS. The lagging index stands at 130.2 (1996=100) in November, with four of the seven components advancing. The positive contributors to the index - beginning with the largest positive contributor - were change in CPI for services, commercial and industrial loans outstanding*, change in labor cost per unit of output*, and ratio of consumer installment credit to personal income*. The negative contributors - beginning with the largest negative contributor - were the average prime rate charged by banks and average duration of unemployment (inverted). The ratio of manufacturing and trade inventories to sales** held steady in November. Based on revised data, the lagging index increased 0.3 percent in October and increased 0.5 percent in September.

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 January 19, 2007. 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 used to deflate the 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, the consumer price index, and the personal consumption expenditure used to deflate 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.

The next release is scheduled for Friday, January 18, 2008 at 10 A.M. ET.

For further information contact:
Frank Tortorici
(1) 212 339 0231
f.tortorici@conference-board.org

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.