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Economy in Brief

Leading Economic Indicators Down Third Month in Four
by Tom Moeller June 22, 2006

The May Composite Index of Leading Economic Indicators fell 0.6% last month after an unrevised 0.1% dip during April, reported the Conference Board. Consensus expectations had been for a 0.4% decline and it was the third drop in the last four months.

Six month growth in the leaders fell to -0.4%, its weakest since early 2001. 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 30% in May but over a six month span 50% of the index components rose, the weakest breadth of six month gain in a year. The only positive contributions to the May index were from higher orders for consumer goods and for capital goods as well as a more positive interest rate spread.

The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate 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 ticked up 0.1% following four consecutive months of 0.2% gain. Of the four component series, 75% rose last month after two months when all the components rose. During the last six months all of the coincident series rose and over the last ten years there has been a 69% correlation between the change in the coincident indicators and real GDP growth.

The lagging indicators rose 0.2% for the third consecutive month. During May, 64.3% of the series' components rose and during the last six months 42.9% rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell slightly.

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

Transparency, Expectations, and Forecasts from the Federal Reserve Bank of Atlanta is available here.

Business Cycle Indicators May April 6 Month Chg., AR 2005 2004 2003
Leading -0.6% -0.1% 2.9% 2.3% 7.4% 5.0%
Coincident 0.1% 0.2% 3.5% 2.2% 2.5% 0.4%
Lagging 0.2% 0.2% 1.6% 3.5% 0.0% -0.0%
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