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Economy in Brief

U.S. Leading Economic Indicators Down Again
by Tom Moeller January 18, 2008

The Conference Board reported that the December composite index of leading economic indicators fell 0.2% after an unrevised 0.4% decline during November. A 0.1% decline had been expected.

For all of last year the leaders fell 0.2% and their six month growth rate, which is calculated as the latest month's reading divided by the average of the prior twelve months, stood at -1.6%. That was equal to the lowest level since 2001.

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 gain amongst the 10 components of the leading index rose slightly to a still low 40.0%. Over a six month period, the breadth of gain amongst the leaders components was 30%, equal to its lowest level since 2002.

Last month unemployment insurance claims, stock prices, and consumer expectations made the largest contributions to the decline in the overall 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 rose 0.1% after a downwardly revised 0.1% November uptick. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth. Three of the four coincident series components rose very slightly and the gains were offset by a decline in real income.

The lagging index rose 0.4% and continued its steady rise. Last month the gain was due to a longer duration of unemployment. The ratio of coincident to lagging indicators (a measure of economic excess) fell during nine months last year to the lowest level since 1991.

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

Signal or Noise? Implications of the Term Premium for Recession Forecasting from the Federal Reserve Bank of New York can be found here.

Business Cycle Indicators December November Y/Y 2007 2006 2005
Leading -0.2% -0.4% -1.4% -0.2% 1.2% 2.5%
Coincident 0.1% 0.1% 1.5% 1.8% 2.5% 2.1%
Lagging 0.4% 0.2% 2.3% 3.0% 3.0% 3.5%
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