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Economy in Brief

U.S. Leading Indicators Increase Continues to Decelerate
by Tom Moeller  September 18, 2020

• Component gains are mixed.

• Coincident indicators' improvement moderates.

• Lagging indicators continue to indicate less economic stress.

The Conference Board reported that its Composite Index of Leading Economic Indicators increased 1.2% during August (-4.7% y/y) following a 2.0% July rise, revised from 1.4%. It was the smallest of four consecutive monthly gains. The gain matched expectations in the Action Economics Forecast Survey. The series is comprised of 10 components which tend to precede changes in overall economic activity.

Last month's gain in the leading index again reflected mixed component movement. Five of the ten components rose and five fell. The largest positive contributions came from fewer initial claims for unemployment insurance, which added 0.97 percentage points to the leader's rise, a longer factory sector workweek, higher stock prices, which added 0.22 points and a higher ISM new orders index, which added 0.25 points. A longer factory sector workweek and a wider interest rate spread between 10-year Treasury Bonds and Fed funds also contributed positively. These gains were offset by declines in consumer expectations for business/economic conditions index, fewer orders consumer goods as well as for nondefense capital goods, fewer building permits and the leading credit index.

Three-month growth in the leading index of 28.6% (AR) in August compared to a record rate of decline of 43.7% in April.

The Index of Coincident Economic Indicators increased 0.6% in August, the smallest of four consecutive monthly gains. Three of the four component series increased, with most of the series gain due to higher payroll employment which added 0.5 percentage points to the index rise. Personal income less transfer payments and industrial production added a combined 1.0 percentage point. Fewer manufacturing & trade sales subtracted minimally from the coincident index change.

Three-month growth in the coincident index slipped m/m to 25.2% (AR), but remained up from -43.8% in April.

The Index of Lagging Economic Indicators continued to indicate declining economic stress as it fell 0.6% (-0.5% y/y), down for the fourth straight month. This was indicated by a fall in the average duration of unemployment which subtracted 0.4 percentage points. Fewer commercial & industrial loans outstanding subtracted 0.3 percentage points also showed less stress. The change in the services CPI and unit labor cost growth subtracted marginally. Working the other way, the consumer installment credit/personal income ratio and the business inventory-to-sales ratio added marginally to the index change.

Three-month growth in the lagging index in August lessened to -17.2% (AR) from +14.7% three months earlier.

The ratio of coincident-to-lagging economic indicators is considered another leading indicator of economic activity. It rose sharply for a fourth consecutive month from its near-record low.

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 (%) Aug Jul Jun Aug Y/Y 2019 2018 2017
Leading 1.2 2.0 3.1 -4.7 1.6 5.7 3.9
Coincident 0.6 1.2 3.9 -5.6 1.8 2.5 2.2
Lagging -0.6 -0.6 -3.5 -0.5 2.8 2.5 2.4
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