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Economy in Brief


by Tom Moeller U.S. Leading Economic Indicators Fell Again July 19, 2007

The composite index of leading economic indicators fell 0.3% last month and reversed all of the modest 0.2% increase during May.

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 fell to 45% after a 55% rise amongst the leaders’ components’ during May.

Higher initial claims for unemployment insurance and lower building permits accounted for most the leader’s decline. Higher capital goods orders and a less narrow interest rate spread offset some of those negative influences.

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% after a 0.1% rise during May. 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 rose 0.5%. As a result the ratio of coincident to lagging indicators (a measure of economic excess) fell. Visit the Conference Board's site for coverage of leading indicator series from around the world.

On Forecasting Future Monetary Policy: Has Forward-Looking Language Mattered? from the Federal Reserve Bank of San Francisco can be found here.

Business Cycle Indicators June May Y/Y 2006 2005 2004
Leading -0.3% 0.2% -0.2% 1.2% 2.5% 7.1%
Coincident 0.2% 0.1% 1.8% 2.5% 2.1% 2.0%
Lagging 0.5% 0.3% 3.1% 3.0% 3.5% 0.6%
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