ECRI Leading Economic Index Improved Slightly

Though the level of the leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell in the latest week, the 0.7% decline was not enough to undo the modest improvement in the leaders since late May. Since then index's six month growth rate has risen to 1.2% from -0.3%.

During the last ten years there has been a 54% correlation between the change in the weekly leading index and the change in US real GDP growth during the following quarter. The correlation has risen to 67% during the last five years.

While growth in the leaders is down sharply from double digit rates logged during 2003, recession is not indicated. Negative growth in excess of -4% typically preceded past U.S. recessions.

Moreover, slower economic growth may not even be indicated by the more than 10 percentage point drop in the leaders' growth. During both the late 1980s and the late 1990s the leaders slowed by an even greater degree and little slowing in real GDP occurred.

Visit the Economic Cycle Research Institute for analysis of US and international business cycles.

The Ukrainian economy seems still trying to find its footing. Data reported today by the National Bank indicate continuing good gains in retail trade and continuing improvement in unemployment. But previous information shows that inflation remains well in double digits and industrial sector growth has slowed markedly so far this year.

Retail trade turnover gained 21.1% in constant prices in June from a year ago, slightly faster than in May and about the same pace as prevailed during 2004. The unemployment rate looks attractive at just 3.0%. This is down 0.5% from a year ago and compares with a peak in June and August 2000 of 4.3%. Thus, some conditions in the economy are clearly showing good health.

At the same time, industrial production, which had expanded 15.8% and 12.5% in 2003 and 2004, respectively, is growing much more slowly this year. Through May, it was up just 6.2% from May 2004, with progressively diminishing year-on-year growth rates each month. But prices continue to rise rapidly. The June CPI is up 14.4% from a year ago; the acceleration began about the middle of last year, and we'd surmise that energy costs were a contributor. The inflationary tendency is indicated in money growth that runs in the upper 30% range over a year ago. Thus, while there is strong real growth in such as retail trade, the accompanying inflation clouds the economic atmosphere, along with persistent political uncertainties.