U.S. Leading Economic Indicators Dipped

The composite index of leading economic indicators, reported by the Conference Board, dipped 0.1% during June after a revised 0.2% decline in May. The decline lowered the leaders by 0.9% so far in 2008.

The leaders still may not yet indicate that the U.S. economy is entering recession. Since their peak in early 2006, the leading index has fallen 2.9%. Prior to the recession of 2001 the leading index declined a greater 3.7% over a shorter, roughly ten month span.

During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.

The breadth of one month increase amongst the leaders' 10 components improved slightly to 40% from 30% in May. Over a six month period the breadth of gain amongst the leaders' components held steady for the fourth month at a low 30%.

Last month higher claims for unemployment insurance, lower stock prices and a lower real money supply made the largest negative contributions to the leaders' decline. These were offset by improved new orders for consumer goods and higher building permits which made the largest positive contributions.

The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate was revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found here.

The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.

The coincident indicators rose 0.1% and recovered their 0.1% May downtick. Most of the coincident series' components rose last month and over the last six months half were up and half were down. So far this year the series is down 0.3%. Declines of 1% to 2% have been associated with past recessions. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth.

The lagging index fell 0.3% after declines during the prior two months. The 0.5% recent rate of increase in the index is much reduced from the 2.0% to 3.5% growth rates during the past four years. The ratio of coincident to lagging indicators (a measure of economic excess) ticked up slightly but remained near its lowest level since early 1991. Visit the Conference Board's site for coverage of leading indicator series from around the world. Mortgage Originations: 2000-2006 from the Federal Reserve Bank of St. Louis can be found here.

Why Are Exchange Rates So Difficult to Predict? from the Federal Reserve Bank of Dallas is available here.

Business Cycle Indicators	June	May	March, 6 Month % (AR)	2007	2006	2005
Leading	-0.1%	-0.2%	-0.9%	-0.4%	1.3%	2.7%
Coincident	0.1%	-0.1%	-0.3%	1.7%	2.4%	2.5%
Lagging	-0.3%	-0.2%	0.5%	2.9%	3.1%	3.1%