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Economy in Brief

U.S. Leading Economic Indicators Plunge
by Tom Moeller  April 17, 2020

• Record decline of 6.7% in leaders reflects widespread effects from coronavirus.

• Coincident indicators signal nascent recession.

• Lagging indicators confirm large downshift in economy.

The Conference Board reported that its Composite Index of Leading Economic Indicators declined an historic 6.7% (-6.5% y/y) during March following a 0.2% February decrease, revised from 0.1%. A 7.0% decline had been expected in the Action Economics Forecast Survey. The series is comprised of 10 components which tend to precede changes in the overall economy.

Last month's weakness reflected widespread declines amongst the component series. The largest negative contribution came from higher initial unemployment insurance claims which accounted for 5.5 percentage points of the total's decline. Lower stock prices and building permits also contributed negatively, as did the length of the average workweek and the ISM new orders index. Consumer expectations for business/economic conditions fell slightly. Factory orders for consumer goods & materials, and nondefense capital goods orders had little effect on the total's change nor did the leading credit index. The interest rate spread between 10-year Treasuries and Fed funds made a slight positive contribution.

Three-month growth in the leading index weakened to -23.5% (AR), the slowest since January 2009 when the economy was in the midst of recession.

The Index of Coincident Economic Indicators declined 0.9% last month (+0.3 y/y) following an unrevised 0.3% gain during February. A decline in industrial production had the largest negative effect on the index followed by reduced payroll employment. Personal income less transfer payments and manufacturing & trade sales made slight positive contributions to the index change.

Three-month growth in the coincident index deteriorated to -2.2% (AR), its weakest since March 2013.

The Index of Lagging Economic Indicators strengthened 1.2% (2.6% y/y) in March after a 0.3% February gain, revised from 0.4%. Contributing positively to the index change were the average duration of unemployment and commercial & industrial loans outstanding. The prime rate charged by banks and growth in the services CPI exhibited sharply negative effects. Other series had little influence on the lagging index change.

Three-month growth in the lagging index surged to 6.0% (AR).

The ratio of coincident-to-lagging economic indicators is considered another leading indicator of economic activity. It plunged to 96.7, its lowest level since May 1961 which preceded several years of positive economic growth.

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.

A Time for Bold Action from John C. Williams, President & CEO Federal Reserve Bank of New York is available here.

Business Cycle Indicators (%) Mar Feb Jan  Y/Y 2019 2018 2017
Leading -6.7 -0.2 0.4 -6.5 1.6 5.7 3.9
Coincident -0.9 0.3 0.1 0.3 1.8 2.5 2.2
Lagging 1.2 0.3 -0.1 2.6 2.8 2.5 2.4
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