The composite indexes of leading, coincident, and lagging indicators produced by The Conference Board are summary statistics for the U.S. economy. They are constructed by averaging their individual components in order to smooth out a good part of the volatility of the individual series. Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity, and cyclical turning points in the lagging index generally have occurred after those in aggregate economic activity.
Click on an item in the table below to read a short description of the component series
||Average weekly hours, manufacturing
||Average weekly initial claims for unemployment insurance
||Manufacturers' new orders, consumer goods and materials
||Vendor performance, slower deliveries diffusion index
||Manufacturers' new orders, non-defense capital goods
||Building permits, new private housing units
||Stock prices, 500 common stocks
||Money supply, M2
||Interest rate spread, 10-year Treasury bonds less federal funds
||Index of consumer expectations
||Employees on nonagricultural payrolls
||Personal income less transfer payments
||Manufacturing and trade sales
||Average duration of unemployment
||Inventories to sales ratio, manufacturing and trade
||Labor cost per unit of output, manufacturing
||Average prime rate
||Commercial and industrial loans
||Consumer installment credit to personal income ratio
||Consumer price index for services
Leading index components
BCI-01 Average weekly hours, manufacturing
The average hours worked per week by production workers in manufacturing
industries tend to lead the business cycle because employers usually adjust
work hours before increasing or decreasing their workforce.
BCI-05 Average weekly initial claims for unemployment
insurance The number of new claims filed for unemployment
insurance are typically more sensitive than either total employment or
unemployment to overall business conditions, and this series tends to lead
the business cycle. It is inverted when included in the leading index;
the signs of the month-to-month changes are reversed, because initial claims
increase when employment conditions worsen (i.e., layoffs rise and new
BCI-08 Manufacturers' new orders, consumer
goods and materials (in 1996 $) These goods are primarily
used by consumers. The inflation-adjusted value of new orders leads actual
production because new orders directly affect the level of both unfilled
orders and inventories that firms monitor when making production decisions.
The Conference Board deflates the current dollar orders data using price
indexes constructed from various sources at the industry level and a chain-weighted
aggregate price index formula.
BCI-32 Vendor performance, slower deliveries
diffusion index This index measures the relative speed at
which industrial companies receive deliveries from their suppliers. Slowdowns
in deliveries increase this series and are most-often associated with increases
in demand for manufacturing supplies (as opposed to a negative shock to
supplies) and, therefore, tend to lead the business cycle. Vendor performance
is based on a monthly survey conducted by the National Association of Purchasing
Management (NAPM) that asks purchasing managers whether their suppliers’
deliveries have been faster, slower, or the same as the previous month.
The slower-deliveries diffusion index counts the proportion of respondents
reporting slower deliveries, plus one-half of the proportion reporting
no change in delivery speed.
BCI-27 Manufacturers' new orders, non-defense
capital goods (in 1996 $) New orders received by manufacturers
in non-defense capital goods industries (in inflation-adjusted dollars)
are the producers’ counterpart to BCI-08.
BCI-29 Building permits, new private housing
units The number of residential building permits issued is
an indicator of construction activity, which typically leads most other
types of economic production.
BCI-19 Stock prices, 500 common stocks
The Standard & Poor’s 500 stock index reflects the price movements
of a broad selection of common stocks traded on the New York Stock Exchange.
Increases (decreases) of the stock index can reflect both the general sentiments
of investors and the movements of interest rates, which is usually another
good indicator for future economic activity.
BCI-106 Money supply (in 1996 $)
In inflation-adjusted dollars, this is the M2 version of the money supply.
When the money supply does not keep pace with inflation, bank lending may
fall in real terms, making it more difficult for the economy to expand.
M2 includes currency, demand deposits, other checkable deposits, travelers
checks, savings deposits, small denomination time deposits, and balances
in money market mutual funds. The inflation adjustment is based on the
implicit deflator for personal consumption expenditures.
BCI-129 Interest rate spread, 10-year Treasury
bonds less federal funds The spread or difference between
long and short rates is often called the yield curve. This series is constructed
using the 10-year Treasury bond rate and the federal funds rate, an overnight
interbank borrowing rate. It is felt to be an indicator of the stance of
monetary policy and general financial conditions because it rises (falls)
when short rates are relatively low (high). When it becomes negative (i.e.,
short rates are higher than long rates and the yield curve inverts) its
record as an indicator of recessions is particularly strong.
BCI-83 Index of consumer expectations
This index reflects changes in consumer attitudes concerning future economic
conditions and, therefore, is the only indicator in the leading index that
is completely expectations-based. Data are collected in a monthly survey
conducted by the University of Michigan’s Survey Research Center. Responses
to the questions concerning various economic conditions are classified
as positive, negative, or unchanged. The expectations series is derived
from the responses to three questions relating to: (1) economic prospects
for the respondent’s family over the next 12 months; (2) the economic prospects
for the Nation over the next 12 months; and (3) the economic prospects
for the Nation over the next five years.
Coincident index components
BCI-41 Employees on nonagricultural payrolls
This series from the Bureau of Labor Statistics is often referred to as
"payroll employment." It includes full-time and part-time workers
and does not distinguish between permanent and temporary employees. Because
the changes in this series reflect the actual net hiring and firing of
all but agricultural establishments and the smallest
businesses in the nation, it is one of the most closely watched series
for gauging the health of the economy.
BCI-51 Personal income less transfer payments
(in 1996 $) The value of the income received from all sources
is stated in inflation-adjusted dollars to measure the real salaries and
other earnings of all persons. This series excludes government transfers
such as Social Security payments and includes an adjustment for wage accruals
less disbursements (WALD) that smooth bonus payments (to more accurately
reflect the level of income that wage earners would use to base their consumption
decisions upon). Income levels are important because they help determine
both aggregate spending the general health of the economy.
BCI-47 Index of industrial production
This index is based on value-added concepts and covers the physical output
of all stages of production in the manufacturing, mining, and gas and electric
utility industries. It is constructed from numerous sources that measure
physical product counts, values of shipments, and employment levels. Although
the value-added of the industrial sector is only a fraction of the total
economy, this index has historically captured a majority of the fluctuations
in total output.
BCI-57 Manufacturing and trade sales (in 1996
$) Sales at the manufacturing, wholesale, and retail levels
are invariably procyclical. This series is inflation-adjusted to represent
real total spending. The data for this series are collected as part of
the National Income and Product Account calculations, and the level of
aggregate sales is always larger than GDP when annualized because some
products and services are counted more than once (e.g. as intermediate
goods or temporary additions to wholesale inventories and a retail sale).
Lagging index components
BCI-91 Average duration of unemployment
This series measures the average duration (in weeks) that individuals counted
as unemployed have been out of work. Because this series tends to be higher
during recessions and lower during expansions, it is inverted when it is
included in the lagging index (i.e., the signs of the month-to-month changes
are reversed). Decreases in the average duration of unemployment invariably
occur after an expansion gains strength and the sharpest increases tend
to occur after a recession has begun.
BCI-77 Ratio, manufacturing and trade inventories
to sales (in 1996 $) The ratio of inventories to sales is
a popular gauge of business conditions for individual firms, entire industries,
and the whole economy. This series is calculated by the Bureau of Economic
Analysis using inventory and sales data for manufacturing, wholesale, and
retail businesses (in inflation- and seasonally-adjusted form) based on
data collected by the Bureau of the Census. Because inventories tend to
increase when the economy slows and sales fail to meet projections, the
ratio typically reaches its cyclical peaks in the middle of a recession.
It also tends to decline at the beginning of an expansion as firms meet
their sales demand from excess inventories.
BCI- 62 Change in labor cost per unit of output,
manufacturing This series measures the rate of change in
an index that rises when labor costs for manufacturing firms rise faster
than their production (and vice-versa). The index is constructed by The
Conference Board from various components, including seasonally adjusted
data on employee compensation in manufacturing (wages and salaries plus
supplements) from the BEA, and seasonally adjusted data on industrial production
in manufacturing from the Board of Governors of the Federal Reserve System.
Because monthly percent changes in this series are extremely erratic, percent
changes in labor costs are calculated over a six-month span. Cyclical peaks
in the six-month annualized rate of change typically occur during recessions,
as output declines faster than labor costs despite layoffs of production
workers. Troughs in the series are much more difficult to determine and
BCI-109 Average prime rate charged by banks
Although the prime rate is considered the benchmark that banks use to establish
their interest rates for different types of loans, changes tend to lag
behind the movements of general economic activities. The monthly data are
compiled by the Board of Governors of the Federal Reserve System.
BCI-101 Commercial and industrial loans outstanding
(in 1996 $) This series measures the volume of business loans
held by banks and commercial paper issued by nonfinancial companies. The
underlying data are compiled by the Board of Governors of the Federal Reserve
System. The Conference Board makes price level adjustments using the same
deflator (based on Personal Consumption Expenditures data) used to deflate
the money supply series in the leading index. The series tends to peak
after an expansion peaks because declining profits usually increase the
demand for loans. Troughs are typically seen more than a year after the
recession ends. (Users should note that there is a major discontinuity
in January 1988, due to a change in the source data; the composite index
calculations are adjusted for this fact.)
BCI-95 Ratio, consumer installment credit
outstanding to personal income This series measures the relationship
between consumer debt and income. Consumer installment credit outstanding
is compiled by the Board of Governors of the Federal Reserve System and
personal income data is from the Bureau of Economic Analysis. Because consumers
tend to hold off personal borrowing until months after a recession ends,
this ratio typically shows a trough after personal income has risen for
a year or longer. Lags between peaks in the ratio and peaks in the general
economy are much more variable.
BCI-120 Change in Consumer Price Index for
services. This series is compiled by the Bureau of Labor
Statistics, and it measures the rates of change in the services component
of the Consumer Price Index. It is probable that because of recognition
lags and other market rigidities, service sector inflation tends to increase
in the initial months of a recession and to decrease in the initial months
of an expansion.
Revised March 9, 2000