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Economy in Brief

Leading Economic Indicators Dipped, Again
by Tom Moeller August 17, 2006

The composite index of leading economic indicators dipped 0.1% during July and reversed the June uptick. The figure reported by the Conference Board was the fourth m/m decline this year and compared to Consensus expectations for a 0.1% increase.

During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.

The breadth of one month gain amongst the 10 components of the leading index slipped to 55% from 60% in June.

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 rose 0.2% for the sixth month this year. During the last one & six months all of the coincident series rose and over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.

The lagging indicators reversed 0.1% of the prior month's revised 0.5% jump. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, rose slightly for only the second month this year.

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

The Taylor Principle and Recent FOMC Policy from the Federal Reserve Bank of St. Louis can be found here.

Business Cycle Indicators July June Y/Y 2005 2004 2003
Leading -0.1% 0.1% 0.9% 2.3% 7.4% 5.0%
Coincident 0.2% 0.2% 2.2% 2.2% 2.5% 0.4%
Lagging -0.1% 0.5% 2.6% 3.5% 0.0% -0.0%
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