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Economy in Brief

U.S. Leading Economic Indicators' Rate of Increase Eases
by Tom Moeller  June 21, 2018

The Conference Board's Composite Index of Leading Economic Indicators improved 0.2% (6.1% y/y) during May after an unrevised 0.4% April rise, which was the same as during March. The latest monthly gain fell short of expectations for a 0.3% rise in the Action Economics Forecast Survey. The index is comprised of 10 components which tend to precede changes in the overall economy.

The component readings of the leading index were mixed last month. Positive contributions were made by a higher ISM new orders index, a steeper interest rate spread between 10-Year Treasuries & Fed funds, firmer consumer expectations for business/economic conditions, higher stock prices, new orders for consumer goods, new orders for nondefense capital goods excluding aircraft and the leading credit index. Contributing negatively to the index change were a shorter average workweek, rising initial claims for unemployment insurance and fewer building permits.

Three-month growth in the leading index declined to 3.7% (AR) versus its 10.3% December peak. It was the weakest growth rate since September.

The Index of Coincident Economic Indicators increased 0.2% (2.2% y/y) in May, the same as during April which was revised from 0.3%. Changes in personal income less transfer payments, business sales, as well as payroll employment contributed positively to the change in the overall index; but industrial production had a negative influence.

The three-month gain in the index of 2.7% (AR) was nearly the strongest since December. It was improved from the 1.2% February low.

The Index of Lagging Economic Indicators rose 0.5% (2.7% y/y) last month following a 0.4% April gain, revised from 0.3%. The average duration of unemployment had the largest positive influence on the index, while C&I loans outstanding and the ratio of consumer installment credit to personal income also contributed positively. Each of the other components had a neutral effect on the index including the change in the services CPI, the change in unit labor costs per unit of output and the prime rate charged by banks. The business I/S ratio had a slight negative effect.

Three-month growth in the lagging index of 2.7% (AR) was down from 5.5% three months earlier.

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 to a new low 98.6.

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.

Business Cycle Indicators (%) May Apr Mar May Y/Y 2017 2016 2015
Leading 0.2 0.4 0.4 6.1 4.1 1.2 4.2
Coincident 0.2 0.2 0.3 2.2 1.8 1.3 2.2
Lagging 0.5 0.4 -0.2 2.7 2.6 2.9 3.7
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