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Economy in Brief

U.S. Leading Economic Indicators Rose
by Tom Moeller February 21, 2006

The composite index of leading economic indicators ticked up 0.1% last month after an upwardly revised 0.6% gain during December which was initially pegged at 0.3%, according to the Conference Board. The uptick fell short of Consensus expectations for a 0.2% 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 backed off to 40% from the sharply improved 75% during December and over the last six months only 40% of the component series rose.

Lower initial claims for unemployment insurance, higher consumer expectations and a higher money supply offset negative contributions from most of the other leading indicator series.

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 the upwardly revised 0.2% rise. 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 index fell 0.1% after strong gains during the prior three months. That prompted a rise in the ratio of coincident to lagging indicators (a measure of economic excess) for the first time in five months.

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

Business Cycle Indicators January December Y/Y 2006 2005 2004
Leading 0.1% 0.6% -0.1% 1.2% 2.5% 7.1%
Coincident 0.1% 0.2% 1.8% 2.5% 2.1% 2.0%
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