Market Digest

The Conference Board Leading Economic Index(TM) (LEI) for the U.S. increased 1.0 percent in September, following a 0.4 percent gain in August, and a 1.0 percent rise in July.

“With the sixth consecutive increase, the LEI’s six-month growth rate has improved to its highest pace since 1983,” says Ataman Ozyildirim, Economist at The Conference Board. “Except for average workweek and building permits, all the leading indicators contributed positively to the index this month. At the same time, the contraction in the coincident economic index has halted in recent months, but the continued downtrend in employment is keeping this index of current economic conditions from rising faster.”

Says Ken Goldstein, Economist at The Conference Board: “The LEI has risen for six consecutive months and the coincident economic index has increased in two of the last three months. These numbers strongly suggest that a recovery is developing. However, the intensity of that recovery will depend on how much, and how soon, demand picks up.”

The Conference Board Coincident Economic Index(TM) (CEI) for the U.S. was unchanged in September, following a 0.1 percent increase in both August and July. The Conference Board Lagging Economic Index(TM) (LAG) declined 0.3 percent in September, following a 0.2 percent decline in August, and a 0.6 percent decline in July.

• The Conference Board LEI for the U.S. increased for the sixth straight month in September. Except for the average workweek and building permits, all the leading indicators contributed positively to the index this month. The six-month change in the index has continued to pick up — to 5.7 percent (an 11.8 percent annual rate) in the period through September, up from -2.7 percent (a -5.3 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have remained widespread in recent months.

• The Conference Board CEI for the U.S. was unchanged in September, following small increases in the previous two months. Employment has continued to fall, while industrial production has risen for three straight months. Between March and September 2009, the index decreased 1.1 percent (a -2.2 percent annual rate), slower than the decline of 3.4 percent (a -6.8 percent annual rate) for the previous six months. In September, the lagging economic index for the U.S. continued to decrease, and with the coincident economic index remaining unchanged, the coincident-to-lagging ratio increased again. Meanwhile, real GDP fell at a 0.7 percent annual rate in the second quarter, following a contraction of 6.4 percent annual rate for the first quarter of the year.

• After having fallen steadily since reaching a peak in July 2007, The Conference Board LEI for the U.S. has increased sharply over the past half year, and its six-month growth rate has picked up to the highest rate since 1983. Meanwhile, the downtrend in The Conference Board CEI for the U.S. has halted in recent months, with the index rising slightly in the third quarter. All in all, the behavior of the composite indexes suggests that the recession is bottoming out and that economic conditions will 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 September. The positive contributors – beginning with the largest positive contributor – were interest rate spread, index of consumer expectations, average weekly initial claims for unemployment insurance (inverted), stock prices, real money supply, index of supplier deliveries (vendor performance), manufacturers’ new orders for nondefense capital goods* and manufacturers’ new orders for consumer goods and materials*. The negative contributors – beginning with the largest negative contributor – were average weekly manufacturing hours and building permits.

The Conference Board LEI for the U.S. now stands at 103.5 (2004=100). Based on revised data, this index increased 0.4 percent in August and increased 1.0 percent in July. During the six-month span through September, the leading economic index increased 5.7 percent, with nine out of ten components advancing (diffusion index, six-month span equals 90 percent).

COINCIDENT INDICATORS

Three of the four indicators that make up The Conference Board CEI for the U.S. increased in September. 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 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 August and increased 0.1 percent in July. During the six-month period through September, the coincident economic index decreased 1.1 percent, with one out of four components advancing (diffusion index, six-month span equals 25 percent).

LAGGING INDICATORS

The Conference Board LAG for the U.S. stands at 109.6 (2004=100) in September, with two of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were change in CPI for services, and 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), ratio of consumer installment credit to personal income* and ratio of manufacturing and trade inventories to sales*. The average prime rate charged by banks held steady in September. Based on revised data, the lagging economic index decreased 0.2 percent in August and decreased 0.6 percent in July.

DATA AVAILABILITY AND NOTES

The data series used to compute The Conference Board Leading Economic Index(TM) (LEI) for the U.S., The Conference Board Coincident Economic Index(TM) (CEI) for the U.S. and The Conference Board Lagging Economic Index(TM) (LAG) for the U.S. and reported in the tables in this release are those available “as of” 12 Noon on October 20, 2009. 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.

Website: www.conference-board.org/economics/bci

Source: The Conference Board