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Economy in Brief

U.S. Leading Economic Indicators Continue to Strengthen
by Tom Moeller  August 17, 2018

The Conference Board's Composite Index of Leading Economic Indicators increased 0.6% (6.3% y/y) during July. The improvement followed an unrevised 0.5% June gain and an upwardly revised 0.1% uptick. A 0.4% increase had been expected in the Action Economics Forecast Survey. 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. Improvement was led by fewer initial claims for unemployment insurance, the leading credit index, a steeper interest rate spread between 10-Year Treasuries & Fed funds and a higher ISM new orders index. In addition, average consumer expectations for business/economic conditions contributed positively. Also, higher stock prices, more building permits, more orders for consumer goods & materials and an increased number of new orders for nondefense capital goods excluding aircraft had positive effects on the leading index change. The average workweek for production workers had a neutral effect.

Three-month growth in the leading index picked up to 5.2 % (AR), but remained below its 10.3% December 2017 peak.

The Index of Coincident Economic Indicators increased 0.2% (2.4% y/y) in July after a 0.3% June gain. Each of the index components had a positive effect on the index including changes in personal income less transfer payments, industrial production, nonagricultural payroll employment and manufacturing & trade sales.

Three-month growth in the coincident 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 declined 0.2% (+2.3% y/y) last month and reversed June's increase. It was the first decline in the index since March. The average duration of unemployment accounted for most of the index decline followed by the change in unit labor cost growth. The prime rate charged by banks and the ratio of consumer installment credit to personal income contributed positively. The other components, including changes in the services CPI as well as commercial & industrial loans outstanding, had neutral effects on the index.

Three-month growth in the lagging index fell to 1.9%, its weakest growth since March and down from 4.3% in June.

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 rose to 99.0 last month and made up declines in two of the prior three months.

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 (%) Jul Jun May Jul Y/Y 2017 2016 2015
Leading 0.6 0.5 0.1 6.3 4.1 1.2 4.2
Coincident 0.2 0.3 0.1 2.4 1.8 1.3 2.2
Lagging -0.2 0.2 0.5 2.3 2.6 2.9 3.7
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