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Economy in Brief

U.S. Leading Economic Indicators Rose, Signs of Excess Surfaced
by Tom Moeller January 24, 2006

The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October's gain also was revised away to a minus 0.1%. Consensus expectations had been for a 0.2% gain during December.

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 lagging indicators rose a firm 0.9% after an upwardly revised 0.6% increase during November. December's gain was the largest increase since January of last year. It was led by higher C&I loans and a longer duration of unemployment. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell sharply to the lowest level since late 2000.

The breadth of one month gain amongst the 10 components of the leading index improved sharply to 70%, its best since March, but over the last six months only 40% of the component series rose.

Lower initial claims for unemployment insurance, higher building permits and higher stock prices made the largest contributions to last month's gain in the leading index.

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 0.2% for the third straight month. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.

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

Business Cycle Indicators December November Y/Y 2006 2005 2004
Leading 0.3% 0.0% -0.1% 1.2% 2.5% 7.1%
Coincident 0.2% 0.2% 2.2% 2.5% 2.1% 2.0%
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