The Conference Board reported Tuesday that the Composite Index of Leading Economic Indicators increased 1.1 percent in January, following a 0.3 percent rise in December and a 0.9 percent increase in November.
Says Ken Goldstein, labor economist at The Conference Board: "The Coincident Economic Indicators have been rising moderately but steadily in recent months, suggesting the economy is sustaining a relatively moderate pace. The Leading Economic Index, however, rose sharply in three of the last four months. That could be a signal of a faster pace this spring."
The Conference Board also reports that the Coincident Index increased 0.2 percent in January, following a 0.2 percent increase in December and a 0.6 percent increase in November. The Lagging Index increased 0.7 percent in January, following a 0.1 percent decline in December and a 0.4 percent increase in November.
The Conference Board(R) U.S. Business Cycle Indicators(SM)
U.S. Leading Economic Indicators and related composite indexes
for January 2006
The Conference Board announced that the U.S. leading index increased 1.1 percent, the coincident index increased 0.2 percent and the lagging index increased 0.7 percent in January.
-- The leading index increased sharply in January, and it has
increased in five of the last six months. The leading index
increased 2.3 percent from July 2005 to January 2006 (a 4.7 percent
annual rate). The strengths and weaknesses among the leading
indicators were balanced through mid-2005, and the strength has
become somewhat more widespread since August. The main contributors
to January's large gain were initial claims for unemployment
insurance (inverted), real money supply, and building permits.
-- The coincident index, a measure of current economic activity,
increased again in January. It has been on a relatively steady
upward trend since April 2003, but this trend moderated somewhat in
the second half of 2005. The coincident index grew at almost a
2.1 percent rate from January 2005 to January 2006, down from about
3.0 percent in 2004, and strength among its components has been
widespread in recent months.
-- The leading index grew strongly from mid-2003 to mid-2004, and it
fluctuated around a more moderate upward trend since mid-2004. At
the same time, real GDP growth slowed to a 1.1 percent annual rate in
the fourth quarter of 2005 (according to advance estimates). The
current behavior of the leading index suggests that the sluggish
growth in the fourth quarter should not persist, and economic growth
is likely to pick up in the near term.
LEADING INDICATORS. Six of the 10 indicators that make up the leading index increased in January. The positive contributors - beginning with the largest positive contributor - were average weekly initial claims for unemployment insurance (inverted), real money supply*, building permits, vendor performance, stock prices, and interest rate spread. The negative contributor was index of consumer expectations. The average weekly manufacturing hours, manufacturers' new orders for consumer goods and materials*, and manufacturers' new orders for nondefense capital goods* held steady in January.
The leading index now stands at 140.1 (1996=100). Based on revised data, this index increased 0.3 percent in December and increased 0.9 percent in November. During the six-month span through January, the leading index increased 2.3 percent, with nine out of ten components advancing (diffusion index, six-month span equals ninety percent).
COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in January. The positive contributors to the index - beginning with the largest positive contributor - were employees on nonagricultural payrolls, manufacturing and trade sales*, and personal income less transfer payments*. The negative contributor was industrial production.
The coincident index now stands at 121.7 (1996=100). This index increased 0.2 percent in December and increased 0.6 percent in November. During the six-month period through January, the coincident index increased 1.0 percent.
LAGGING INDICATORS. The lagging index stands at 122.8 (1996=100) in January, with five of the seven components advancing. The positive contributors to the index - beginning with the largest positive contributor - were commercial and industrial loans outstanding*, average duration of unemployment (inverted), average prime rate charged by banks, change in labor cost per unit of output*, and ratio of consumer installment credit to personal income*. The ratio of manufacturing and trade inventories to sales*, and change in CPI for services* held steady in January. Based on revised data, the lagging index decreased 0.1 percent in December and increased 0.4 percent in November.
DATA AVAILABILITY AND NOTES.
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 February 17. 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.
Effective with the January 22, 2004 release a programming error in the calculation of the leading index -- in place since January 2002 -- has been corrected. The cyclical behavior of the leading index was not affected by either the calculation error or its correction, but the level of the index in the 1959-1996 period is slightly higher.
Summary Table of Composite Indexes
2005 2006 6-month
Nov Dec Jan Jul to Jan
Leading index 138.2 r 138.6 r 140.1 p
Percent Change .9 .3 r 1.1 p 2.3
Diffusion 70.0 65.0 70.0 90.0
Coincident Index 121.2 r 121.5 p 121.7 p
Percent Change .6 r .2 p .2 p 1.0
Diffusion 100.0 100.0 75.0 100.0
Lagging Index 122.1 r 122.0 r 122.8 p
Percent Change .4 r -.1 r .7 p 1.8
Diffusion 57.1 42.9 78.6 71.4
n.a. Not available p Preliminary r Revised
Indexes equal 100 in 1996
Source: The Conference Board
The next release is scheduled for March 20, Monday at 10 A.M. ET.
