The Conference Board Leading Economic Index(TM) (LEI) for the U.S. Increases Again

Indicators Point to an Economy in Early Recovery

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Jan 21, 2010, 10:00 ET

NEW YORK, Jan. 21 /PRNewswire/ -- The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 1.1 percent in December, following a 1.0 percent gain in November, and a 0.3 percent rise in October.

Says Ataman Ozyildirim, Economist at The Conference Board: "The Conference Board LEI for the U.S. increased sharply in December, and has risen steadily for nine consecutive months. The six-month growth rate has picked up slightly to 5.2 percent (about a 10.8 percent annual rate) in the period through December, substantially higher than earlier in the year. In addition, the strengths among the leading indicators have remained very widespread in recent months."

Adds Ken Goldstein, Economist at The Conference Board: "The indicators point to an economy in early recovery. The coincident economic index shows slow expansion of economic activity through December. The leading economic index suggests that the pace of improvement could pick up this spring."

The Conference Board Coincident Economic Index™ (CEI) for the U.S. rose 0.1 percent in December, following a 0.1 percent increase in both November and October. The Conference Board Lagging Economic Index™ (LAG) declined 0.2 percent in December, following a 0.5 percent decline in November, and a 0.2 percent decline in October.

The Conference Board LEI for the U.S. increased sharply again in December. The interest rate spread component followed by housing permits made the largest positive contributions to the index this month. The six-month growth rate in the index was 5.2 percent (about a 10.8 percent annual rate) in the period through December, and it remains substantially higher than earlier in the year. In addition, the strengths among the leading indicators have remained very widespread in recent months.

The Conference Board CEI for the U.S. also increased in December and it has gained in five of the last six months. Industrial production made a large positive contribution to the index, more than offsetting the decline in employment in December. Between June and December, the index has grown by 0.6 percent (1.2 percent annual rate). In December, the lagging economic index continued to decrease, and with the coincident economic index rising slightly, the coincident–to-lagging ratio increased further. Meanwhile, real GDP expanded at a 2.2 percent annual rate in the third quarter, its first increase since the second quarter of 2008.

The Conference Board LEI for the U.S. has risen steadily for nine months, and it has now risen above its most recent peak of March 2006. After steep gains earlier in 2009, its six-month growth rate has stabilized somewhat in recent months. Meanwhile, The Conference Board CEI for the U.S. has begun to improve slightly since July 2009, after a steep decline from December 2007 to June 2009. Taken together, the current behavior of the composite indexes suggests that economic conditions should continue to improve in the near term.

LEADING INDICATORS

Eight of the ten indicators that make up The Conference Board LEI for the U.S. increased in December. The positive contributors – beginning with the largest positive contributor – were interest rate spread, building permits, average weekly initial claims for unemployment insurance (inverted), stock prices, index of consumer expectations, index of supplier deliveries (vendor performance), money supply* and manufacturers' new orders for nondefense capital goods*. The average workweek of production workers and manufacturers' new orders for consumer goods and materials* held steady in December.

The Conference Board LEI for the U.S. now stands at 106.4 (2004=100). Based on revised data, this index increased 1.0 percent in November and increased 0.3 percent in October. During the six-month span through December, the leading economic index increased 5.2 percent, with eight out of ten components advancing (diffusion index, six-month span equals 80 percent).

COINCIDENT INDICATORS

Three the four indicators that make up The Conference Board CEI for the U.S. increased in December. The positive contributors to the index – beginning with the largest positive contributor – were industrial production, personal income less transfer payments* and manufacturing and trade sales*. The negative contributor to the index this month was employees on nonagricultural payrolls.

The Conference Board CEI for the U.S. now stands at 99.9 (2004=100). This index increased 0.1 percent in November and increased 0.1 percent in October. During the six-month period through December, the coincident economic index increased 0.6 percent, with three out of four components advancing (diffusion index, six-month span equals 75 percent).

LAGGING INDICATORS

The Conference Board LAG for the U.S. stands at 108.5 (2004=100) in December, with one of the seven components advancing. The only positive contributor to the index this month was change in labor cost per unit of output*. The negative contributors – beginning with the largest negative contributor – were commercial and industrial loans outstanding*, average duration of unemployment (inverted), and ratio of consumer installment credit to personal income*. The ratio of manufacturing and trade inventories to sales*, change in CPI for services and average prime rate charged by banks* held steady in December. Based on revised data, the lagging economic index decreased 0.5 percent in November and decreased 0.2 percent in October.

DATA AVAILABILITY AND NOTES

The data series used to compute The Conference Board Leading Economic Index™ (LEI) for the U.S., The Conference Board Coincident Economic Index™ (CEI) for the U.S. and The Conference Board Lagging Economic Index™ (LAG) for the U.S. and reported in the tables in this release are those available "as of" 12 Noon on January 20, 2010. Some series are estimated as noted below.

* Series in The Conference Board LEI for the U.S. based on our 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 Conference Board CEI for the U.S. that are based on our estimates are personal income less transfer payments and manufacturing and trade sales. Series in The Conference Board LAG for the U.S. that are based on our estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, 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 Conference Board LEI for the U.S.

NOTE:

This month's release incorporates annual benchmark revisions to the composite indexes, which bring them up-to-date with revisions in the source data. These revisions do not change the cyclical properties of the indexes. The indexes are updated throughout the year, but only for the previous six months. Data revisions that fall outside of the moving six-month window are not incorporated until the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes will no longer be directly comparable to those issued prior to the benchmark revision.

In addition to annual benchmark revisions, The Conference Board (TCB) continuously monitors the behavior and performance of the composite indexes and their components and makes changes from time to time (See BCI Handbook 2001 http://www.conference-board.org/publications/describebook.cfm?id=852, for a description of the previous comprehensive revision that TCB undertook in 1996.) These occasional comprehensive benchmark revisions are consistent with long-standing TCB policy to make changes to the indexes when research indicates substantial improvements are possible. These changes are the result of research at TCB and regular consultations with its Business Cycle Indicators Advisory Panel and other experts. Details of these changes will be announced in advance in the technical notes and posted on our website when they are available.

For more information, please visit our website at http://www.conference-board.org/economics/bci/ or contact us at [email protected].

SOURCE The Conference Board