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FOR RELEASE: 9:30 A.M. ET, FRIDAY, JUNE 28, 2002

GERMANY COMPOSITE INDEXES FOR MAY 2002

The Press Release in a PDF file

The Conference Board announced today that the leading index for Germany decreased 0.3 percent, while the coincident index was unchanged in May.

  • The leading index registered another decline in May, after decreasing slightly in April. This month's decrease was primarily due to accelerating inflation in services, falling stock prices, and an increase in new applications for unemployment benefits.
  • Despite the short-term weakness in the leading index, it remains 1.0 percent above its most recent low of September 2001. Moreover, its six-month diffusion index, measuring the proportion of components that is rising, is now above 50.0 percent.
  • The coincident index, a measure of current economic activity, was unchanged in May for the third consecutive month, after declining continually for the six-month period through February 2002. Taken together with the leading index, this suggests the recent economic weakness in Germany may be coming to an end.

LEADING INDICATORS. Five of the nine components in the leading index decreased in May. The negative contributors to the leading index -in order from the largest negative contributor to the smallest- include stock prices, growth rate of CPI services, inverted applications for unemployment compensation, new orders in investment goods industries*, and the yield spread. The positive contributors to the leading index -in order from the largest to the smallest positive contributor- include new residential construction orders*, inventory change, and consumer confidence index*. Gross enterprises and properties income* was unchanged in May.

With the decrease of 0.3 percent in May, the leading index now stands at 102.2 (1990=100). Based on revised data, this index decreased 0.1 percent in April and it increased 0.2 percent in March. During the six-month span through May, the leading index increased 0.4 percent, with five of the nine components increasing (diffusion index, six-month span equals 61.1 percent).

COINCIDENT INDICATORS. Two of the four components in the leading index increased in May. The positive contributors to the coincident index -in order from the larger to the smaller positive contributor - are retail trade volume* and industrial production*. The inverted unemployment rate was the only negative contributor to the coincident index in May, while manufacturing sales volume* remained unchanged.

The coincident index now stands at 100.2 (1990=100). Based on revised data, this index was unchanged in April and March. During the six-month period through May, the coincident index decreased 0.8 percent, with none of its four components making a positive contribution (diffusion index, six-month span equals 0.0 percent).

The schedule for the next release incorporating annual benchmarks for all components will be announced within two weeks.

* See notes under data availability.

DATA AVAILABILITY, The data series used by The Conference Board to compute the two composite indexes reported in the tables in this release are those available "as of" 9 A.M. ET on June 27, 2002. Some series are estimated as noted below.

NOTES: Series in the leading index that are based on The Conference Board estimates are new orders for investment goods industries, consumer confidence, inventory change, new residential construction orders, and gross enterprises and properties income. Series in the coincident index that are based on The Conference Board estimates are industrial production, manufacturing sales and retail trade sales.

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Professional Contacts at The Conference Board:
Ataman Ozyildirim: 1-212-339-0399
Mike Fort: 1-212-339-0402
Bart Van Ark: 31-50-363-3674

Media Contacts:
Randy Poe: 1-212-339-0234
Frank Tortorici: 1-212-339-0231

Email: indicators@conference-board.org
Website: http://www.globalindicators.org


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 four and nine individual leading or coincident indicators. (See page 3 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 about 3.5 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 report and Web site:www.globalindicators.org.

Germany Composite Indexes: Components and Standardization Factors
 Leading IndexFactor
1.New Orders, Investment Goods.0604
2.Applications for Unemployment Compensation.0283
3.Yield Spread, 10 year minus 3 month.3379
4.Change in Inventories.0993
5.Gross Enterprise and Property Income.0835
6.Stock Prices.0302
7.New Orders, Residential Construction.0415
8.Growth Rate for Consumer Price Index for Services.2067
9.Consumer Confidence Index.1122

Coincident Index
1.Manufacturing Sales.0591
2.Industrial Production.1018
3.Retail sales.0963
4.Unemployment Rate.7428

Notes:
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 revised effective with January 30, 2001 release, and all historical values for the two composite indexes have been revised at the 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 1973-1999 as the sample period for measuring volatility for the leading index, and 1960-1999 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 our Web site: www.globalindicators.org.

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 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.


NOTICES

The schedule for the next release incorporating annual benchmarks for all components will be announced within two weeks.

All releases are at 9:30 A.M. (ET)
In Germany -3:30 P.M. (CET)

Notes:
With annual benchmark revisions in January 2001, all components of the leading and coincident indexes were updated with all revisions in the underlying component data.

For detailed information on benchmark revisions, visit our website: www.globalindicators.org

ABOUT THE CONFERENCE BOARD. Founded in 1916, The Conference Board is the premier business membership and research network. The Conference Board has become a global leader in helping executives build strong professional relationships, expand their business knowledge and find solutions to a wide range of business challenges. The Board's Economics Program, under the direction of Chief Economist Gail Fosler, is a recognized source of forecasts, economic analysis and objective indicators such as the Leading Economic Indicators and the Consumer Confidence Index.

This role is part of a long tradition of research and education that stretches back to the compilation of the first continuous measure of the cost of living in the United States in 1919. In 1995, The Conference Board assumed responsibility for computing the composite indexes from the U.S. Department of Commerce. The Conference Board now produces business cycle indexes for the U.S., Australia, France, Germany, Korea, Japan, Mexico, Spain and the U.K. To subscribe to any of these indexes, please visit www.globalindicators.org or contact the Global Indicators Research Institute at 212-339-0312 or email indicators@conference-board.org.

AVAILABLE FROM THE CONFERENCE BOARD:

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(Includes monthly release, data, charts and commentary)
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(Sample available on request)
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Business Cycle Indicators for France, Germany, Japan, Korea, Mexico, Spain and the U.K. are available at $500 per country per year (1 user). Discounts are available to Associates of The Conference Board and accredited academic institutions.