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Economy in Brief

U.S. Leading Economic Indicators Fell Sharply
by Tom Moeller September 20, 2007

The composite index of leading economic indicators fell nearly twice expectations and declined 0.6% last month, fully reversing all of the prior month's increase, according to the Conference Board.

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

The breadth of one month gains amongst the 10 components of the leading index plunged to 15% in August from 70% in July.

All of the components of the leading indicators index made a negative contribution except the money supply. Declining building permits have made a negative contribution for six out of the last eight months.

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 a 0.2% rise during July. 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 0.3% during August. As a result, the ratio of coincident to lagging indicators (a measure of economic excess) fell slightly and has been roughly unchanged all year.

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

Business Cycle Indicators August July Y/Y 2006 2005 2004
Leading -0.6% 0.7% 0.6% 1.2% 2.5% 7.1%
Coincident 0.1% 0.2% 1.7% 2.5% 2.1% 2.0%
Lagging 0.3% 0.2% 3.5% 3.0% 3.5% 0.6%
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