Leading Indicators Drop 0.5%
New York, NY, March 22, 2007--The Conference Board said today that the leading index decreased 0.5 percent, the coincident index increased 0.3 percent and the lagging index increased 0.2 percent in February.
The leading index decreased in February and January's slight increase was revised down to a small decline as new data became available for the manufacturers' new orders components for January. There was a small offset in upward revisions in housing permits and real money supply. From August to February, the leading index rose 0.2 percent (a 0.4 percent annual rate). Large negative contributions from initial claims for unemployment insurance (inverted), consumer expectations, and vendor performance (supplier deliveries) were mainly responsible for February's decline. The leading index has been flat to declining in nine of the last twelve months. In addition, the weaknesses among the leading indicators have been slightly more widespread than strengths in recent months.
The coincident index increased in February, as it has in four of the last six months. From August to February, the coincident index grew almost 1.0 percent (about a 2.0 percent annual rate). In February, industrial production made the largest contribution to the coincident index, and the strengths among the coincident indicators continue to be more widespread than weaknesses in recent months.
Following the recent declines, the leading index is now 0.9 percent below its most recent high in January 2006, but its six-month growth rate has picked up to about a 0.4 to 0.9 percent annual rate, up from about a -1.3 percent annual rate in mid-2006. At the same time, real GDP growth was at a 2.2 percent annual rate (preliminary estimates) in the fourth quarter of 2006, following a 2.0 percent rate in the third quarter. The recent behavior of the leading and coincident indexes still suggests that slow to moderate economic growth may continue in the near term.
Four of the ten indicators that make up the leading index increased in February. The positive contributors — beginning with the largest positive contributor — were manufacturers' new orders for nondefense capital goods*, stock prices, real money supply*, and manufacturers' new orders for consumer goods and materials*. The negative contributors — beginning with the largest negative contributor — were average weekly initial claims for unemployment insurance (inverted), index of consumer expectations, vendor performance, building permits and interest rate spread. The average weekly manufacturing hours held steady in February.
The leading index now stands at 137.3 (1996=100). Based on revised data, this index decreased 0.3 percent in January and increased 0.7 percent in December. During the six-month span through February, the leading index increased 0.2 percent, with four out of ten components advancing (diffusion index, six-month span equals forty percent).
All four of the indicators that make up the coincident index increased in February. The positive contributors to the index — beginning with the largest positive contributor — were industrial production, personal income less transfer payments*, employees on nonagricultural payrolls, and manufacturing and trade sales*.
The coincident index now stands at 123.7 (1996=100). This index decreased 0.1 percent in January and increased 0.3 percent in December. During the six-month period through February, the coincident index increased 1.0 percent.
The lagging index stands at 127.9 (1996=100) in February, with four of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were commercial and industrial loans outstanding*, change in CPI for services, ratio of consumer installment credit to personal income* and change in labor cost per unit of output*. The negative contributor was average duration of unemployment (inverted). The ratio of manufacturing and trade inventories to sales* and average prime rate charged by banks held steady in February. Based on revised data, the lagging index remained unchanged in January and increased 0.7 percent in December.
The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available "as of" 12 Noon on March 21, 2007. Some series are estimated as noted below.
* Series in the leading index that are based on The Conference Board estimates are manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods, and the personal consumption expenditure used to deflate the money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.
The procedure used to estimate the current month's personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month's consumer price index when it is available before the release of the U.S. Leading Economic Indicators.
Effective with the September 18, 2003 release, the method for calculating manufacturers' new orders for consumer goods and materials (A0M008) and manufacturers' new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.
