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Economy in Brief

U.S. Leading Economic Indicators Strengthen
by Tom Moeller  January 25, 2018

The Conference Board's Composite Index of Leading Economic Indicators increased 0.6% (5.7% y/y) during December following a 0.5% November rise, revised from 0.4%. A 0.5% gain had been expected in the Action Economics Forecast Survey. During all of 2017, the index increased 4.1%, the eighth consecutive annual rise. Three-month growth in the index surged to 9.9% (AR), the quickest rate since early in 2010.

Component movement in the leading index was mixed. The ISM new orders index, the leading credit index, the interest rate spread between 10-Year Treasuries and Fed funds, consumer expectations for business/economic conditions and stock prices continued to register positive effects on the index. Nondefense capital goods orders and orders for consumer goods also gained. Initial unemployment insurance claims and building permits had neutral effects and the average workweek contributed negatively.

The Index of Coincident Economic Indicators increased 0.3% (2.1% y/y) last month following a 0.1% November rise, initially reported as 0.3%. Each of the component series, including industrial production, personal income less transfer payments, business sales and payroll employment, contributed positively to the index. During all of 2017, the index increased 1.7%, the eighth consecutive yearly gain. Three-month growth in the index strengthened to 3.2% (AR), its best since December 2014.

The Index of Lagging Economic Indicators increased 0.7% (2.7% y/y) last month after an unrevised 0.1% rise. A longer average duration of unemployment had a third consecutive sharp positive effect on the index. Commercial & industrial loans outstanding, the change in the services CPI, the consumer credit/personal income ratio, and the prime rate charged by banks also had positive effects. During all of last year, the index rose 2.6%, also the seventh consecutive rise. Three-month growth in the lagging index jumped to 4.3%, the quickest rise since May 2016.

The ratio of coincident-to-lagging indicators is often considered to be a leading indicator of economic activity. As economic slack diminishes relative to current performance, the ratio will rise. It declined last month to the lowest level in four months.

The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations are in the AS1REPNA database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

Did Communicating a Numerical Inflation Target Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of Kansas City is available here.

Business Cycle Indicators (%) Dec Nov Oct Dec Y/Y 2017 2016 2015
Leading 0.6 0.5 1.3 5.7 4.1 1.2 4.2
Coincident 0.3 0.1 0.4 2.1 1.7 1.3 2.2
Lagging 0.7 0.1 0.3 2.7 2.6 2.9 3.7
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