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Economy in Brief

U.S. Leading Economic Indicators Better
by Tom Moeller November 20, 2006

The composite index of leading economic indicators rose 0.2% last month after an upwardly revised 0.4% gain during September, according to the Conference Board. The back to back increases were the first since January and followed several monthly declines during 2006 but the October increase fell short of Consensus expectations for a 0.3% rise.

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 improved to 60%, the best since June.

Higher stock prices, improved consumer sentiment, and especially a higher money supply offset lower building permits and weaker vendor performance to generate the leader's increase last month.

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 increased 0.1% after an upwardly revised 0.2% increase during September. 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 increased 0.2% for the second month as the average duration of unemployment lengthened. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell after three consecutive months of increase.

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

Business Cycle Indicators October September Y/Y 2005 2004 2003
Leading 0.2% 0.4% 1.0% 2.3% 7.4% 5.0%
Coincident 0.1% 0.2% 2.7% 2.2% 2.5% 0.4%
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