Conference Board Leading Indicators Reveal a Slowing U.S. Economy

The Conference Board reports today that the Composite Index of Leading Economic Indicators declined 0.7% in September, following a 0.1% decline in August and a 0.1% decline in July.

Says Ken Goldstein, Labor Economist at The Conference Board: “The Coincident Economic Indicators, which measure current economic conditions, edged lower in both August and September. The overall Leading Economic Indicators began to edge down in July, suggesting the economy was losing steam this summer and would continue to slow down in the fall. The spike in energy prices is another major factor changing the direction of the economy, worsened by a decline in confidence by both consumers and chief executives. Add this to the negative impact of the hurricanes and flooding, resulting in lost jobs and incomes, and lost output, and we could be in for slower economic growth through the end of the year.”

The Conference Board reports that the Coincident Index declined 0.1% in September, following a 0.1% decline in August, and a 0.2% increase in July. The lagging index increased 0.2% in September, following no change in August, and increasing 0.2% in July.

Data for September are the first release of the U.S. Leading Economic Indicators and Related Composite Indexes to reflect the impact of the hurricanes, which hit the Gulf Coast region of the United States at the end of August and in September. As actual data for all components become available for September and October, the immediate impact of the hurricanes will be more fully reflected in the coming months.

The Conference Board announced today that the U.S. leading index decreased 0.7 percent, the coincident index decreased 0.1 percent and the lagging index increased 0.2 percent in September.

• The leading index decreased sharply in September as the economic impact of the hurricanes in the Gulf region began to be reflected in the component data. September’s decline in the leading index is its third consecutive fall. In September, the largest negative contributors to the leading index were the index of consumer expectations and initial claims for unemployment insurance. The growth rate of the leading index has been slowing down steadily from a peak growth of about 10.0 percent at the end of 2003, and it is now fluctuating in the 0.5 to 1.5 percent annual rate range in recent months.

• The coincident index, a measure of current economic activity, decreased in September, and the slight increase in August was revised down to a slight decrease as actual data for personal income, which partially reflects the impact of Hurricane Katrina, became available. September’s decline in the coincident index is also partly due to the effect of the hurricanes as employment and industrial production registered decreases. The coincident index has been increasing at a relatively steady 2.5 percent annual rate since April 2003, but its growth rate has moderated in recent months.

• The leading index has slowed down steadily since mid-2004. The impact of the hurricanes reinforced an already existing moderation in the leading index. Excluding the large positive contributions from the interest rate spread, the leading index has been fluctuating around a relatively flat trend throughout 2005. At the same time, the growth rate of real GDP has slowed to a 3.3 percent annual rate in the second quarter of 2005, down from a 4.3 percent rate in the first quarter of 2004. Although it is too soon to tell if the negative impact of the hurricanes on the leading index will be lasting, the recent behavior of the leading index is still consistent with the economy continuing to expand more moderately in the near term.

LEADING INDICATORS. Four of the ten indicators that make up the leading index increased in September. The positive contributors — beginning with the largest positive contributor — were vendor performance, building permits, interest rate spread, and stock prices. The negative contributors — beginning with the largest negative contributor — were average weekly initial claims for unemployment insurance (inverted), index of consumer expectations, real money supply, manufacturers’ new orders for nondefense capital goods, and manufacturers’ new orders for consumer goods and materials. The average weekly manufacturing hours held steady in September.

The next release is scheduled for November 21, Monday at 10 A.M. ET. The release calendar for 2006 will be available at the end of October. For more information, please visit our web site http://www.conference-board.org/economics/bci

The leading index now stands at 136.8 (1996=100). Based on revised data, this index decreased 0.1 percent in August and decreased 0.1 percent in July. During the six-month span through September, the leading index increased 0.4 percent, with seven out of ten components advancing (diffusion index, six-month span equals seventy percent).

COINCIDENT INDICATORS. Two of the four indicators that make up the coincident index increased in September. The positive contributors to the index — beginning with the largest positive contributor — were personal income less transfer payments, and manufacturing and trade sales. The negative contributors to the index — beginning with the largest negative contributor — were industrial production and employees on nonagricultural payrolls.

The coincident index now stands at 120.7 (1996=100). Based on revised data, this index decreased 0.1 percent in August and increased 0.2 percent in July. During the six-month period through September, the coincident index increased 0.8 percent.

LAGGING INDICATORS. The lagging index stands at 120.3 (1996=100) in September, with four of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were average duration of unemployment (inverted), average prime rate charged by banks, ratio of consumer installment credit to personal income, and ratio of manufacturing and trade inventories to sales. The negative contributors — beginning with the largest negative contributor — were commercial and industrial loans outstanding, change in CPI for services, and change in labor cost per unit of output. Based on revised data, the lagging index remained unchanged in August and increased 0.2 percent in July.