Leading Indicators

LEI for U.S. Increases

26 January, 2012

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in December to 94.3 (2004 = 100), following a 0.2 percent increase in November and a 0.6 percent increase in October. This month’s data inaugurates a number of major changes to the components and calculation of the LEI [see benchmark notes below].

“Revised figures show that adding the new Leading Credit Index™, in conjunction with other changes, makes the LEI a more accurate predictor of U.S. business cycles since 1990,” said Ataman Ozyildirim, economist at The Conference Board. “The improvement is especially pronounced before and during the 2008-2009 recession, and during the current expansion. In December, the LEI for the U.S. increased again. The gain was widespread among the leading indicators, suggesting economic conditions should improve in early 2012. However, the LEI gain in December was held back by negative contributions from the new Leading Credit Index — which indicates weak credit and financial conditions — and from consumer expectations for business and economic conditions.”

Added Ken Goldstein, economist at The Conference Board: “The CEI and other recent data reflect an economy that ended 2011 on a positive note and the LEI provides some reason for cautious optimism in the­ first half of 2012. This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam. Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.3 percent in December to 103.4 (2004 = 100), following a 0.1 percent increase in November and a 0.8 percent increase in October.

The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in December to 113.4 (2004 = 100), following a 0.4 percent increase in November and a 0.5 percent increase in October.

*** Annual Benchmark Revisions ***

January 26, 2012 release The Conference Board Leading Economic Index® (LEI) for The United States incorporates annual benchmark revisions to the composite indexes. These regular benchmark revisions bring the indexes up-to-date with revisions in the source data. The 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 incorporated when the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes and their month-over-month changes will no longer be directly comparable to those issued prior to the benchmark revision. The entire history of the indexes from 1959 to present has been revised.

Comprehensive Benchmark Revisions

In addition to these regular annual revisions, The Conference Board implemented a comprehensive revision of The Conference Board Leading Economic Index® (LEI) for the United States effective with the January 26, 2012 release. The last time the LEI had comprehensive revisions was in 1996 after The Conference Board received the responsibility for the LEI and the Business Cycle Indicators program from the Bureau of Economic Analysis at the U.S. Department of Commerce.

These comprehensive revisions are the result of an extensive reevaluation of existing components of The Conference Board Leading Economic Index® for the United States. Following discussions with the Business Cycle Indicators Advisory Panel and other experts, The Conference Board has decided to replace three of the ten components and make a minor adjustment to another component. The composition changes reflected in the new LEI address structural changes that have occurred in the U.S. economy in the last several decades. The upcoming changes in the LEI composition include:

1) incorporating the new Leading Credit Index™ (LCI) and omitting the real money supply (M2) component starting in 1990 (real M2 remains in the index before 1990);

2) replacing the ISM Supplier Delivery Index with the ISM New Orders Index;

3) replacing the Reuters/University of Michigan Consumer Expectations Index with an equally weighted average of consumer expectations of business and economic conditions using questions from Surveys of Consumers conducted by Reuters/University of Michigan and Consumer Confidence Survey by The Conference Board (after 1978, Reuters/University of Michigan Consumer Expectations Index remains in the index before 1978 ); and

4) replacing “New Orders for (nondefense) Capital Goods” with “New Orders for (nondefense) Capital Goods excluding Aircraft.”

In addition to these major changes to the composition, The Conference Board has implemented changes in the methodology and procedures used in the calculation process. These modifications are:

1) normalized levels of the indicator rather than its monthly changes will be used to calculate the component contributions of components based on diffusion indexes such as the ISM New Orders Index;

2) when component data are missing, autoregressions in log differences instead of levels will be used to calculate the statistical imputation of the missing months;

3) trend adjustment will be done in two periods: 1959-1983 and 1984-2010 (same as the volatility adjustment); and

4) LCI contributions to the LEI are calculated from its levels (not monthly changes) and it is inverted

As a result of these changes, the history of the revised indexes and their month-over-month changes will no longer be directly comparable to those issued prior to the comprehensive benchmark revision. Based on its performance since 1990, and especially before and during the 2008-2009 recession, the new LEI should provide more accurate predictions of business cycle peaks and troughs.

Leading Credit Index™ 

Financial indicators such as yield curves and stock prices have been extensively used as leading indicators of economic activity due to their forward looking content. The coverage of financial and credit market activity can be improved to account for some of the structural changes in the U.S. economy (especially in financial markets). Over the past three decades, many new financial indicators, such as interest rate swaps, credit default swaps, certain corporate-treasury spreads, the Federal Reserve’s senior loan officer survey, etc.  have become available, but, since most of these new indicators have not been available for a long enough period, very little research has been conducted to evaluate their usefulness as leading indicators.  The Conference Board research indicates that several of these financial indicators rank highly according to their ability to predict recessions (i.e. peaks and troughs in the business cycle).  These financial indicators have been aggregated into a single composite index, named the Leading Credit Index™, and incorporated as a component in the revised LEI, replacing real money supply (M2). 

The new Leading Credit Index™ differs from others in the literature in that it consists of a small, carefully selected set of component indicators that specifically target business cycle turning points rather than financial stress or instability.

About The Conference Board Leading Economic Index^® (LEI) for the U.S.

The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators. They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component – primarily because they smooth out some of the volatility of individual components.

The ten components of The Conference Board Leading Economic Index^® for the U.S. include:

Average weekly hours, manufacturing

Average weekly initial claims for unemployment insurance

Manufacturers’ new orders, consumer goods and materials

ISM Index of New Orders

Manufacturers’ new orders, nondefense capital goods excluding aircraft orders

Building permits, new private housing units

Stock prices, 500 common stocks

Leading Credit Index™

Interest rate spread, 10-year Treasury bonds less federal funds

Average consumer expectations for business and economic conditions

For full press release and technical notes:

http://www.conference-board.org/data/bcicountry.cfm?cid=1

For more information about The Conference Board global business cycle indicators:

http://www.conference-board.org/data/bci.cfm

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

The next release is scheduled for Friday, February 17, 2012 at 10 A.M. ET

China

LEI for China Increases Again

18 January, 2012

This month’s release incorporates annual benchmark revisions to the composite economic indexes. These regular benchmark revisions bring the indexes up-to-date with revisions in the source data. The 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 incorporated when the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes and their month-over-month changes will no longer be directly comparable to those issued prior to the benchmark revision.

In addition to the regular benchmark revisions, this month’s release also incorporates a new trend adjustment procedure. Also, starting with the January 2012 release, the monthly press releases of The Conference Board Leading Economic Index^® (LEI) and The Conference Board Coincident Economic Index^® (CEI) for China will follow a new schedule: each month’s release will now report data from the previous month, rather than the data from two months ago.

For further details please see page 3 in the technical notes.

The Conference Board Leading Economic Index^®(LEI) for China increased 0.7 percent in December to 222.0 (2004 = 100), following a 0.5 percent increase in November and a 0.4 percent increase in October. Five of the six components contributed positively to the index in December.

• Download a PDF of the technical notes for underlying detail, diffusion indexes, components, contributions and graphs in Chinese.
• Download a PDF of the press release in Chinese.

“December’s monthly increase in the LEI for China was in part due to seasonal factors, as firms ramped up production ahead of the Chinese New Year holiday. Increased bank lending and an uptick in consumer sentiment also contributed to the reading in December, as liquidity conditions eased somewhat.” says Andrew Polk, resident economist of The Conference in Beijing,  “However, the LEI growth has been slowing gradually over the last six months, and strengths and weaknesses among the leading indicators have become balanced. While this trend indicates that economic growth will  continue to slow in the first quarter of 2012 on weak external demand and previous policy tightening, the government’s shifting focus from inflation control to growth support should herald continued gradual policy easing, putting a floor under the deceleration.”

The Conference Board Coincident Economic Index^®(CEI) for China, which measures current economic activity, increased 0.8 percent in December to 215.4 (2004 = 100), following a 1.1 percent increase in November and remained unchanged in October. All five components contributed positively to the index in December.

The Conference Board LEI for China aggregates six economic indicators that measure economic activity in China. Each of the LEI components has proven accurate on its own. Aggregating individual indicators into a composite index filters out so-called “noise” to show underlying trends more clearly.

About The Conference Board Leading Economic Index^® (LEI) for China 

The Conference Board Leading Economic Index^® for China was launched in May 2010. Plotted back to 1986, this index has successfully signaled turning points in the economic cycles of China.

The Conference Board also produces LEIs for Australia, the Euro Area, France, Germany, Japan, Korea, Mexico, Spain, the United Kingdom, and the United States.

The six components of The Conference Board Leading Economic Index^® (LEI) for China include:

Total Loans Issued by Financial Institutions (source: People’s Bank of China)

5000 Industry Enterprises Diffusion Index: Raw Materials Supply Index (source: People’s Bank of China)

NBS Manufacturing PMI Sub-Indices: PMI Supplier Deliveries (source: National Bureau of Statistics)

Consumer Expectations Index (source: National Bureau of Statistics)

Total Floor Space Started (source: National Bureau of Statistics)

NBS Manufacturing PMI Sub-Indices: Export Orders (source: National Bureau of Statistics)

For more information including full press release and technical notes:

http://www.conference-board.org/data/bcicountry.cfm?cid=11

To view The Conference Board calendar of 2012 indicator releases:

http://www.conference-board.org/data/

* The series in The Conference Board LEI for China that is based on our estimates is the 5000 industry enterprises diffusion index: raw materials supply index. The series in The Conference Board CEI for China that are based on our estimates are: volume of passenger traffic and manufacturing employment.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. For additional information about The Conference Board and how it can meet your needs, visit our website at
www.conference-board.org.

The next release is scheduled for February 24 at 10:00 AM Beijing Time; February 23 at 9:00 P.M. US time.

Japan

Japan LEI decline

Released: Tuesday, January 10, 2012

This month’s release incorporates annual benchmark revisions to the composite economic indexes, These regular benchmark revisions bring the indexes up-to-date with revisions in the source data. The 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 incorporated when the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes and their month-over-month changes will no longer be directly comparable to those issued prior to the benchmark revision.

The Conference Board Leading Economic Index^®  (LEI) for Japan decreased 0.2 percent The Conference Board Coincident Economic Index^®  (CEI) decreased 0.1 percent in November.

• The Conference Board LEI for Japan fell slightly in November following a sharp increase in October. Large declines in the index of overtime worked, stock prices, and the six-month growth rate of productivity more than offset positive contributions from dwelling units started, business failures (inverted), and real money supply.  Despite the small decline this month, the leading economic index increased by 2.0 percent (about a 4.1 percent annual rate) between May and November this year, a reversal from the decline of 2.4 percent (about a -4.8 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have become more widespread than the weaknesses in the last six months.
• The Conference Board CEI for Japan, a measure of current economic activity, also decreased slightly in November. Industrial production fell sharply, while the rest of the coincident indicators increased this month.  The coincident economic index increased by 3.8 percent (about a 7.8 percent annual rate) between May and November this year, a reversal from the decline of 4.2 percent (about a -8.2 percent annual rate) for the previous six months. Meanwhile, real GDP growth also picked up sharply in the third quarter this year, to 5.6 percent (annual rate), following a 2.0 percent contraction in the second quarter and a 6.6 percent contraction in the first quarter this year.
• The Conference Board LEI for Japan has been on a slightly upward trend in the last several months, despite month-to-month volatility. The six-month growth rate in the index has returned to positive territory, and even picked up further in November according to latest available data. Meanwhile, the rate of growth in The Conference Board CEI for Japan has also picked up in the last six months as the impact of the natural disasters wanes, but the index is still well below its most recent peak reached in the beginning of 2011. Taken together, the composite indexes and their components suggest that although near term risks to economic growth remain, economic activity should continue increasing in the coming months.

LEADING INDICATORS.  Six of the ten components that make up The Conference Board LEI for Japan increased in November.  The positive contributors to the index – in order from the largest positive contributor to the smallest – include dwelling units started, (inverted) business failures, real money supply, interest rate spread, the Tankan business conditions survey, and real operating profits*.  The negative contributors – in order from the largest negative contributor to the smallest – include the index of overtime worked, the six month growth rate of labor productivity,  stock prices, and  the new orders for machinery and construction component*.

With the decrease of 0.2 percent in November, The Conference Board LEI for Japan now stands at 94.6 (2004=100).  Based on revised data, this index increased 1.2 percent in October and decreased 0.5 percent in September.  During the six-month span through November, the index increased 2.0 percent, and seven of the ten components advanced (diffusion index, six-month span equals 70.0 percent).

COINCIDENT INDICATORS.  Three of the four components that make up The Conference Board CEI for Japan decreased in November. The positive contributors to the index – in order from the largest positive contributor to the smallest – include wage and salary income,  number of employed persons,  and the retail, wholesale, and manufacturing sales* component.  Industrial production declined in November.

With the decrease of 0.1 percent in November, The Conference Board CEI for Japan now stands at 97.7 (2004=100).  Based on revised data, this index increased 0.4 percent in October and increased 2.5 percent in September.  During the six-month span through November, the index increased 3.8 percent, and all four components advanced (diffusion index, six-month span equals 100.0 percent).

DATA AVAILABILITY AND NOTES.  The data series used to compute The Conference Board Leading Economic Index^®  (LEI) for Japan and The Conference Board Coincident Economic Index^® (CEI) for Japan reported in this release are those available “as of” 5:00 P.M. ET January 5, 2012.  Some series are estimated as noted below.

* The series in The Conference Board LEI that are based on our estimates are real operating profits and new orders for machinery.  The series in The Conference Board CEI that is based on our estimates is real manufacturing sales.

**According to The Statistics Bureau and the Director-General for Policy Planning of Japan, figures in the Number of Employed Persons series from the three regions (Iwate, Miyagi and Fukushima) affected by the March 11^th earthquake were missing from March through August 2011.  From September 2011 on, this series again includes data for the whole of Japan. Thus, this series shows a sharp decline in March 2011 and a substantial gain in September 2011.

s

 

United Kingdom

LEI for U.K. Decreases

17 January, 2012

This month’s release incorporates annual benchmark revisions to the composite economic indexes. These regular benchmark revisions bring the indexes up-to-date with revisions in the source data. The 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 incorporated when the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes and their month-over-month changes will no longer be directly comparable to those issued prior to the benchmark revision.

The Conference Board Leading Economic Index^®(LEI) for the U.K. decreased 0.6 percent in November, after declines of 0.3 percent in October and 0.2 percent in September. Two of the seven components made positive contributions to the index this month. The index stands at 102.5 (2004=100).

Said Jean-Claude Manini, The Conference Board Senior Economist for Europe: “The fourth consecutive decline of the LEI for the United Kingdom in November highlights the growing risk of the British economy following the lead of the Euro Area into a recession. However, if the economy begins to contract, the relative strength of services industries may counterbalance the gloom of the manufacturing sector and limit the magnitude and duration of the contraction.”

The Conference Board Coincident Economic Index^® (CEI) for the U.K., a measure of current economic activity, remained unchanged in November, after increasing 0.1 percent in October and 0.2 percent in September. The index stands at 102.4 (2004 = 100).

The Conference Board LEI for the U.K. aggregates seven economic indicators that measure activity in the U.K., each of which has proven accurate on its own. Aggregating individual indicators into a composite index filters out so-called “noise” to show underlying trends more clearly.

The seven components of The Conference Board Leading Economic Index^® (LEI) for the U.K. include:

Order Book Volume (source: Confederation of British Industry)

Volume of Expected Output (source: Confederation of British Industry)

Consumer Confidence Indicator (source: European Commission)

FTSE All-Share Index (source: FTSE Group)

Yield Spread (source: Bank of England)

Productivity, Whole Economy (Office for National Statistics)

Total Gross Operating Surplus of Corporations (Office for National Statistics)

Plotted back to 1970, this index has successfully signaled turning points in the U.K. business cycles. The Conference Board currently produces leading economic indexes for the Euro Area and nine other countries, including Australia, China, France, Germany, Japan, Korea, Mexico, Spain and the U.S.

To view The Conference Board calendar of 2012 indicator releases:

http://www.conference-board.org/data/

For more information: http://www.conference-board.org/data/bci.cfm

For full press release: http://www.conference-board.org/data/bcicountry.cfm?cid=2

About The Conference Board

The Conference Board is an independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.
www.conference-board.org.

The next release is scheduled for Tuesday, February 14, 2012 at 10:00 AM GMT (5:00 AM ET).

Baltic Dry Index

[SOURCE: Bloomberg.com]

Commodities

Oil

Copper

Gold