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Economy in Brief

Leading Economic Indicators Surged
by Tom Moeller February 21, 2006

The Conference Board reported that the Composite Index of Leading Economic Indicators surged 1.1% last month, nearly twice the Consensus expectation, following an upwardly revised 0.3% increase during December.

The breadth of one month gain amongst the 10 components of the leading index improved to 70% in January although over six months the breadth of gain in the leaders slipped back to a still-high 70% from 90%.

Fewer initial claims for unemployment insurance and a higher real level of M2 made the largest positive contributions to last month's gain the leading index. Vendor performance, building permits and stock prices made lesser positive contributions.

The .01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the smallest since 2001. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found here.

The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.

The coincident indicators rose 0.2% following an unrevised 0.2% December increase. All of the four component series rose over the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP.

The lagging indicators surged 0.7% following a revised 0.1% December decline. Higher C&I loans and a longer duration of unemployment accounted for most of the increase. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell and reversed two months of gain.

Visit the Conference Board's site for coverage of leading indicator series from around the world.

The Taxation of Equity, Dividends, and Stock Prices from the Federal Reserve Bank of Boston is available here.

Business Cycle Indicators Jan Dec 6 Month Chg., AR 2005 2004 2003
Leading 1.1% 0.3% 2.1% 2.3% 7.4% 5.0%
Coincident 0.2% 0.2% 1.5% 2.2% 2.5% 0.4%
Lagging 0.7% -0.1% 3.4% 3.5% 0.0% -0.0%
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