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Economy in Brief

U.S. Leading Indicators Rise For A Fifth Straight Month And Signal Economic Recovery
by Tom Moeller  September 21, 2009

The Conference Board's Index of Leading Economic Indicators continued to suggest a pending economic recovery with a 0.6% August increase that was close to expectations. The rise in the composite index of leaders was the fifth in a row and the 4.7% increase during those five months was the strongest since early-1983. The index itself was at the highest level since January of last year. The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.

Perhaps tempering the outlook was that the 0.6% August increase in the leaders was the weakest of the last five months. Moreover, a slightly diminished 60% of the index components rose. Higher stock prices and a steeper interest rate yield curve, along with a slower speed of vendor deliveries, made the largest positive contributions to the latest overall increase in the leaders. However, the real money supply fell for the fourth month in the last five and average weekly factory hours worked were unchanged as were new orders for consumer goods & materials.

Continuing to suggest that the rate of decline in the economy is slowing were the coincident indicators. They were unchanged during August after a slim 0.1% July gain. While hardly indicative of a robust economy, these declines compare with monthly shortfalls of 0.6%-to-1.1% dating back to September. Fostering the turnaround have been slight increases in industrial production and real personal income as well as diminished monthly declines in payrolls.

Wringing out past economic excesses is needed for real economic recovery. In a further sign that excesses in the U.S. economy are diminishing, the lagging index fell for the eight month in the last nine. To that point, C&I loans outstanding fell sharply for the ninth straight month and consumer credit versus personal income was off for the fifth month this year. Regardless, the average duration of unemployment shortened and the change in CPI for services eased. The ratio of coincident-to-lagging indicators (a measure of economic excess) also continued higher for the fifth straight month to the highest level since November.

The Conference Board figures are available in Haver's BCI database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

Beyond Inflation Targeting: Should Central Banks Target the Price Level? from the Federal Reserve Bank of Kansas City is available here.

How Will Unemployment Fare Following the Recession? also from the Federal Reserve Bank of Kansas City can be found here.

Business Cycle Indicators (%) August July June May 6-Month % (AR) 2008 2007 2006
Leading 0.6 0.9 0.8 6.2 -2.8 -0.3 1.5
Coincident 0.0 0.1 -0.4 -5.4 -0.9 1.6 2.5
Lagging -0.1 -0.5 -0.9 -8.6 2.9 2.8 3.3
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