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November 2000

The leading index decreased 0.3 percent in November, and the coincident index increased 0.1 percent. Taken together, the composite indexes point to a potential slowing in the German economy in early 2001.

  • The general weakness in the leading index in recent months continues. Since reaching its highest value in February 2000, the leading index has declined slightly.
  • The strong trend in the coincident index seen in the first half of this year is not likely to be repeated in the first half of the next year.

LEADING INDICATORS.  Five of the nine components of the leading index had negative impacts on the leading index in November. The negative contributors to the leading index —in order from the largest negative contributor to smallest— are CPI for services, inventory change, yield spread, residential construction orders, and stock prices. Three components increased in November. The positive contributors —in order from the largest to smallest— are consumer confidence, applications for unemployment compensation, and new orders in investment goods. Gross enterprise and property income remained steady in November. (For details see data availability section and tables). 

With the decrease of 0.3 percent in November, the leading index now stands at 107.1 (1990=100). Based on revised data, this index decreased 0.1 percent in October and held steady in September. During the six-month span through November, the leading index declined 0.5 percent, and only four of the nine components increased (diffusion index, six-month span equals 44.4 percent).

COINCIDENT INDICATORS. Three of the five components of the coincident index increased in November. The increases —in order from the largest positive contributor to the smallest— are gross domestic product, unemployment rate, and manufacturing sales. Industrial production and retail trade remained steady in November. (For details see data availability section and tables).

With the increase of 0.1 percent in November, the coincident index stands at 108.7 (1990=100). Based on revised data, this index increased 0.1 percent in October, and increased 0.2 percent in September. During the six-month period through November, the coincident index increased 0.7 percent, with four out of five series making positive contributions (diffusion index, six-month span equals 80 percent).

DATA AVAILABILITY.  The data series used to compute the two composite indexes reported in the tables in this release are those available "as of" 10 A.M. CET (Germany) on December 24, 2000. At the time of the release, recent data for several of the series are based on estimates. In the leading index, new orders for investment goods industries, applications for unemployment compensation, yield spread, consumer confidence index, change in inventories, new residential construction orders and gross enterprises and properties income are based on estimates. In the coincident index, recent data for gross domestic product, industrial production, manufacturing sales and retail trade are also based on estimates.

The schedule for the Germany Leading Economic Indicators news release in 2000:
December 2000 data ... Tuesday January 30, 2001
January 2001 data ... Tuesday February 27, 2001
February 2001 data ... Tuesday March 27, 2001
March 2001 data ... Thursday April 26, 2001
April 2001 data ... Tuesday May 29, 2001
May 2001 data ... Thursday June 28, 2001

All releases are at 9:30 A.M. EST

As of January 2001, all components of the leading and coincident indexes will go through annual benchmark revisions.

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THE CYCLICAL INDICATOR APPROACH. The composite indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading and coincident indexes are essentially composite averages of between five and eight individual leading or coincident indicators. (See below for details.) 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.

Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, while the cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity.

A change in direction in a composite index does not signal a cyclical turning point unless the movement is of significant size, duration, and scope. Historical analysis with U.S. data shows recession warnings are best determined by looking for negative growth of at least 1 percent, coupled with declines in at least half of the components over a six-month span. Further explanations of the cyclical indicator approach and the composite index methodology appear in The Conference Board’s Business Cycle Indicators page:     Methodology and Revisions.

Germany Composite Indexes: Components and Standardization Factors

Leading Index Factor
1. New Orders, Investment Goods .0604
2. Applications for Unemployment Compensation .0287
3. Yield Spread, 10 Year minus 3 month .3352
4. Change in Inventories .0999
5. Gross Enterprise and Property Income .0828
6. Stock Prices .0311
7. New Orders, Residential Construction .0415
8. Growth Rate for Consumer Price index for Services .2079
9. Consumer Confidence Index .1125


Coincident Index Factor
1. Manufacturing Sales .0605
2. Gross Domestic Product .3519
3. Industrial Production .0898
4. Retail Sales .0879
5 Unemployment Rate .4099


As of January 2001, all components of the leading and coincident indexes will go through annual benchmark revisions.

The component factors are inversely related to the standard deviation of the month-to-month changes in each component. They are used to equalize the volatility of the contribution from each component and are "normalized" to sum to 1. These factors were last revised effective with the June 27, 2000 release, and all historical values for the two composite indexes were revised at that time to reflect the changes. (Under normal circumstances, updates to the leading and coincident indexes only incorporate revisions to data over the past six months.)

The factors above were calculated using 1973-1998 as the sample period for measuring volatility for the leading index, and 1991-1998 as the sample period for the coincident index. There are additional sample periods as the result of different starting dates for the component data. When one or more components is missing, the other factors are adjusted proportionately to ensure that the total continues to sum to 1. For additional information on the standardization factors and the index methodology visit the following web page: Methodology and Revisions.

To address the problem of lags in available data, those leading and coincident indicators that are not available at the time of publication are estimated using statistical imputation. An autoregressive model is used to estimate each component. The resulting indexes are constructed using real and estimated data, and will be revised as the data unavailable at the time of publication become available. Such revisions are part of the monthly data revisions, now a regular part of the U.S. Business Cycle Indicators program. The main advantage of this procedure is to utilize in the leading index the data, such as stock prices, that are available sooner than other data on real aspects of the economy, such as and new orders and changes in inventory. Empirical research by The Conference Board suggests there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.