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Economy in Brief

U.S. Leading Economic Indicators Improve
by Tom Moeller  July 19, 2018

The Conference Board's Composite Index of Leading Economic Indicators increased 0.5% (5.8% y/y) during June following stability in May, revised from 0.2%. A 0.4% rise had been expected in the Action Economics Forecast Survey. It was the firmest increase since February. The index is comprised of 10 components which tend to precede changes in the overall economy.

Amongst the components of the index, most made a positive contribution. A higher ISM new orders index, an improved leading credit index and a steeper interest rate spread between 10-Year Treasuries & Fed funds had the largest positive effects followed by firmer consumer expectations for business/economic conditions, higher stock prices, new orders for consumer goods, and lower initial claims for unemployment insurance. Having no effect on the leading index change were new orders for nondefense capital goods excluding aircraft and the average workweek for production workers. Contributing negatively to the index change were fewer building permits.

Three-month growth in the leading index held roughly steady at a reduced 3.3% (AR), down from its 10.3% December peak. It was nearly the weakest growth rate since September.

The Index of Coincident Economic Indicators increased 0.3% (2.3% y/y) in June after a 0.1% May uptick, revised from 0.2%. It also the firmest gain since February. Changes in personal income less transfer payments and industrial production made positive contributions to the total index while nonagricultural payroll employment and manufacturing & trade sales had no effect.

The three-month gain in the index of 2.3% (AR) has been fairly steady recently and was improved from 1.6% growth in Q1.

The Index of Lagging Economic Indicators rose 0.3% (2.7% y/y) last month following an unrevised 0.5% May increase. The average duration of unemployment, the prime rate charged by banks, more commercial & industrial loans outstanding and the ratio of consumer installment credit to personal income contributed positively. The other components had a neutral effect on the index, except the change in the services CPI which contributed negatively.

Three-month growth in the lagging index of 4.7% (AR) was the quickest since February, up from 1.6% in March.

The ratio of coincident-to-lagging indicators is often considered to be a leading indicator of economic activity. As economic slack diminishes relative to current performance, the ratio will rise. It held at its record low of 98.6.

The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations are in the AS1REPNA database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

Business Cycle Indicators (%) Jun May Apr Jun Y/Y 2017 2016 2015
Leading 0.5 0.0 0.4 5.8 4.1 1.2 4.2
Coincident 0.3 0.1 0.2 2.3 1.8 1.3 2.2
Lagging 0.3 0.5 0.4 2.7 2.6 2.9 3.7
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