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Economy in Brief

U.S. Leading Economic Indicators Improve -- With a Caveat
by Carol Stone   March 17, 2011

The Conference Board reported that its Index of Leading Economic Indicators rose 0.8% in February, following a slim 0.1% rise in January. The index now stands at 113.4 (2004=100), compared to the recession low 97.4, registered in March 2009, three months before the trough in the overall economy. Consensus expectations had anticipated a 0.9% increase in the February figure.

These gains put the three-month rate of increase at 7.8% (AR), a fourth consecutive sizable rise after the uptrend in the index had paused last summer and fall. The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, consumer and capital goods orders.

The breadth of increase among the components, measured by the 1-month diffusion index, rose from 55% in January to 80% last month, only the second incidence of that high number in the last 14 months. A steeper yield curve, that is, 10-year Treasuries over federal funds, was the main contributor to the February advance, with the drop in unemployment insurance claims a close second. The two drags on the index are an estimated decrease in capital goods orders and the retreat in building permits. Notably, however, the fragmentary information we have so far on March has turned back negative or neutral: consumer sentiment dropped hard in the preliminary Michigan Survey reading, the yield curve spread and the stock market have decreased slightly, and through the second week, unemployment insurance claims have flattened. These early readings clearly put a note of caution on our view after February's nice rebound in the total index.

The index of coincident indicators continued to move higher in February, rising 0.2%. The three-month annualized rate of change was 3.2%, the same as January, making these the best two months since last June.

The lagging index rose 0.2% in February, reversing most of January's 0.3% decline. The ratio of coincident-to-lagging indicators, which tends to "lead" the "leaders" was steady at January's 94.9%, a high for the current recovery.

The Conference Board figures are available in Haver's BCI database; the components are available there and most are also in USECON. Visit the Conference Board's site for coverage of leading indicator series from around the world.

Business Cycle Indicators(%) Feb Jan Dec Y/Y 2010 2009 2008
Leading 0.8 0.1 1.0 5.8 7.8 0.3 -3.1
Coincident 0.2 0.3 0.3 2.5 1.1 -5.4 -1.3
Lagging 0.2 -0.3 0.2 0.6 -2.9 -1.9 3.1
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