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Economy in Brief

Leading Economic Indicators Fell
by Tom Moeller March 20, 2006

The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a revision to January which halved that month's gain to 0.5% from the 1.1% surge estimated initially.

During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.

The breadth of one month gain amongst the 10 components of the leading index fell to 50% in February from 70% in January although over six months the breadth of gain in the leaders surged back to 90%.

Higher initial claims for unemployment insurance, easier vendor performance, lower consumer expectations and lower building permits made large negative contributions to last month's decline in the leading index.

The minimal 0.01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the was the second in two months. 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 0.3% following an unchanged reading for January, initially reported at +0.2%. All of the four component series rose both last month and during 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 rose just 0.1% following a downwardly revised 0.5% January gain. Over the last six months, three quarters of the series' components rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, reversed most of the prior month's decline.

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

Business Cycle Indicators Feb Jan 6 Month Chg., AR 2005 2004 2003
Leading -0.2% 0.5% 4.7% 2.3% 7.4% 5.0%
Coincident 0.3% 0.0% 2.0% 2.2% 2.5% 0.4%
Lagging 0.1% 0.5% 3.7% 3.5% 0.0% -0.0%
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