New York, NY, September 22, 2005 -- The Conference Board announced today that the U.S. leading index decreased 0.2%, the coincident index increased 0.2% and the lagging index decreased 0.1% in August.
The leading index decreased slightly in August, its second consecutive fall. As actual and revised data for the manufacturing new orders components became available, July’s slight increase was revised down to a small decrease and there were small downward revisions to the previous months. In August, the main negative contributor to the leading index was the index of consumer expectations. The strengths and weaknesses in the leading indicators have been somewhat balanced but much of the strength in the leading index in recent months comes from the interest rate spread. (The economic effects of Hurricane Katrina are not reflected in the August values.)
The coincident index, a measure of current economic activity, increased again in August. The coincident index has been increasing at a relatively steady 2.5% annual rate since April 2003, but its growth rate has moderated in recent months. The strength among the coincident indicators continues to be widespread.
The leading index increased rapidly through the first quarter of 2004, and although it continues to rise, its growth has slowed steadily through the first half of 2005. The growth rate of the leading index has slowed down from a peak growth of about 10.0% at the end of 2003, and it is now fluctuating in the 0.5 to 1.5% annual rate range in recent months. At the same time, the growth rate of real GDP has slowed to a 3.3% annual rate in the second quarter of 2005 down from a 4.3% rate in the first quarter of 2004. The behavior of the leading index (pre-Hurricane Katrina) is consistent with the economy continuing to expand more moderately in the near term.
Leading Indicators
Five of the ten indicators that make up the leading index increased in August. The positive contributors –- beginning with the largest positive contributor –- were interest rate spread, manufacturers’ new orders for nondefense capital goods, manufacturers’ new orders for consumer goods and materials, real money supply, and stock prices. The negative contributors –- beginning with the largest negative contributor –- were index of consumer expectations, vendor performance and building permits. The average weekly manufacturing hours and average weekly initial claims for unemployment insurance (inverted) held steady in August.
The leading index now stands at 137.6 (1996=100). Based on revised data, this index decreased 0.1% in July and increased 1.1% in June. During the six-month span through August, the leading index increased 0.4%, with five out of ten components advancing (diffusion index, six-month span equals 50%).
Coincident Indicators
All four indicators that make up the coincident index increased in August. The positive contributors to the index –- beginning with the largest positive contributor –- were employees on nonagricultural payrolls, personal income less transfer payments, manufacturing and trade sales, and industrial production.
The coincident index now stands at 121.1 (1996=100). This index increased 0.1% in July and increased 0.4% in June. During the six-month period through August, the coincident index increased 1.2%.
Lagging Indicators
The lagging index stands at 120.0 (1996=100) in August, with four of the seven components advancing. The positive contributors to the index -– beginning with the largest positive contributor –- were average prime rate charged by banks, commercial and industrial loans outstanding, ratio of consumer installment credit to personal income, and ratio of manufacturing and trade inventories to sales.
