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FOR WIRE TRANSMISSION: 10:30 A.M. EST, TUESDAY, JANUARY 23, 2001

U.K. COMPOSITE INDEXES OF 
LEADING AND COINCIDENT INDICATORS:

November and December 2000


This month’s release incorporates annual benchmark revisions to the composite indexes as well as a revision to the composition of the coincident index.*
  • The Conference Board will release composite indexes for the U.K. a month ahead of its previous schedule due to improvements in data acquisition. 
  • The annual benchmark revisions bring the leading and coincident indexes up to date with all revisions in the underlying component data.
  • Gross domestic product was removed from the composition of coincident index.

    *See Historical Leading and Coincident Indexes graphs for a comparison between former and newly revised indexes.

The leading index remained unchanged in November and increased 0.3 percent in December. The coincident index increased 0.2 percent in November and remained unchanged in December. Taken together, the increases in the two composite indexes show moderate but continued growth in the U.K. economy.

  • After declining earlier in the year 2000r, the leading index has continued to strengthen and is now above its most recent peak attained in January 2000.
  • Although the rate of growth in the coincident index remains below its 1999 pace, the coincident index should resume its growth trend if the strength in the leading index continues.

LEADING INDICATORS.  Three of the eight components that make up the leading index increased in December. In December, the most significant increases – in order from the largest positive contributor to the smallest – are export order book volume, change in consumer confidence, and stock prices. Four components of the leading index decreased in December. The negative contributors – in order from the largest to smallest – are change in inventories, new orders in engineering industries, housing starts, and money supply. Bond yields held steady in December. 

With the increase of 0.3 percent, the leading index stands at 118.0 (1990=100) in December 2000. With the newly revised data, this index held steady in November. During the six-month span through December, the leading index increased 1.0 percent, and four of the eight components advanced (diffusion index, six-month span equals 50.0 percent).

COINCIDENT INDICATORS. Three of the four components of the coincident index increased in December. The increases – in order from largest contributor to smallest – are real household disposable income, industrial production, and retail sales. Inverted unemployment declined in December. 

The coincident index held steady at 111.7 (1990=100) in December. With the newly revised data, the index increased 0.2 percent in November. During the six-month period through December, the coincident index increased 0.6 percent, with two of the four components making positive contributions (diffusion index, six-month span equals 50 percent).

DATA AVAILABILITY. The data series used to compute the two composite indexes reported in this release are those available "as of" 10 A.M. EST on January 19, 2001. At the time of the release, recent data for the following series are based on estimates: Changes in inventories, money supply, new orders in engineering industries, housing starts, household disposable income, and industrial production.

The schedule for the U.K. Leading Economic Indicators news release in 2001:
January 2001 data Tuesday February 20, 2001
February 2001 data Tuesday March 20, 2001
March 2001 data Thursday April 19, 2001
April 2001 data Tuesday May 22, 2001
May 2001 data Thursday June 21, 2001

             All releases are at 10:30 A.M. EST
Notes:
With this release, all components of the leading and coincident indexes were subjected to annual benchmark revisions


** In 2001, The Conference Board will release composite indexes a month ahead of its current schedule, because of improvements in data acquisition. 


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Professional Contacts at 
The Conference Board:
Media Contacts:
Ataman Ozyildirim: 1-212-339-0399 Randy Poe: 1-212-339-0234
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Email: lei@conference-board.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 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.

U.K Composite Indexes: Components and Standardization Factors

Leading Index Factor
1. Bond Yields, Percent .4583
2. Export Order Book Volume .0706
3. Change in Consumer Confidence .1143
4. Change in Inventories .0006
5. Money Supply, M0 .2157
6. Stock Prices, Ordinary Industrial Share Index .0332
7. New Orders, Engineering Industries .0639
8. Housing Starts .0435

 
Coincident Index Factors
1. Personal Disposable Income .2583
3. Industrial Production .0926
4. Retail Sales .0893
5. Unemployment Rate .5597

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 are newly revised with this release (January 23, 2001), and all historical values for the two composite indexes are revised at this 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 for the leading index were calculated using 1977-1999 as the sample period for measuring volatility. A separate set of factors for the 1974-1977 period, as well as the 1960-1973 period, is available upon request. The factors above for the coincident index were calculated using 1971-1999 as the sample period; a separate set of factors for 1970-1971 is available upon request. These multiple sample periods are 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 their total continues to sum to 1. For additional information on the standardization factors and the index methodology visit the 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 monthly data revisions are now a regular part of the U.S. Business Cycle and Global Indicators program. The main advantage of this procedure is to utilize in the leading index the data such as bond yields, stock prices, and change in consumer confidence that are available sooner than other data on "real" aspects of the economy such as housing starts and new orders. 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.