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FOR RELEASE: 10:00 A.M. ET, MONDAY, SEPTEMBER 24, 2001

U.S. COMPOSITE INDEXES FOR AUGUST 2001

The Press Release in a PDF file

The Conference Board announced today that the U.S. leading index decreased 0.3 percent, the coincident index remained flat, and the lagging index decreased 0.3 percent in August. The composite indexes and their components suggest weakening conditions in the U.S. economy going into the end of the third quarter, just prior to the attack on September 11, 2001.

  • The drop in the leading index in August was broad-based. This drop reflects the fact that the strength in the policy and expectations' components over the past several months had not yet translated into improved economic conditions.
  • Holding steady in August, the coincident index remains relatively flat.
  • The six-month diffusion indexes for both the leading and coincident index have been persistently indicating widespread weakness in the U.S. economy since last year.

LEADING INDICATORS. Seven of the ten indicators that make up the leading index decreased in August. The negative contributors to the leading index - from the largest negative contributor to the smallest - include average weekly manufacturing hours, index of consumer expectations, stock prices, vendor performance, interest rate spread, average weekly initial claims for unemployment insurance and building permits. Money supply* was the only positive contributor to the index, while manufacturers' new orders for nondefense capital goods* and manufacturers' new orders for consumer goods and materials* held steady for the month of August.

The leading index now stands at 109.6 (1996=100). Based on revised data, this index increased 0.4 percent in July and increased 0.2 percent in June. During the six-month span through July, the leading index increased 0.6 percent, with three of the ten components advancing (diffusion index, six-month span equals 30 percent).

* See notes under data availability.

The next release is scheduled for October 22, 2001 at 10:00 A.M

NOTE: The Conference Board announces that this month's release of the Composite Indexes for the month of August incorporates the U.S. Department of Commerce's conversion from the Standard Industrial Classification (SIC) to the new North American Industry Classification System (NAICS). New orders for consumer goods and materials and new orders for nondefense capital goods in the leading index, manufacturing and trade sales in the coincident index, and the ratio of manufacturing trade inventories to sales in the lagging index, now incorporate data based on the new NAICS classification system dating back to 1997. Data prior to 1997 are still calculated based on the SIC classifications. As a result of these revisions, the standardization factors used to calculate the composite indexes have been updated. The Conference Board will continue its research on the two orders series in the leading index, and may incorporate further revisions at the next annual benchmark procedure in January, 2002. For further information, contact The Conference Board at 212-339-0402.

COINCIDENT INDICATORS. Two of the four indicators that make up the coincident index decreased in August. The negative contributors to the index - from the largest negative contributor to the smallest - are industrial production and employees on nonagricultural payrolls. The positive contributors to the index - from the largest positive contributor to the smallest - are personal income less transfer payments* and manufacturing and trade sales*.

By holding steady in August, the coincident index now stands at 116.6 (1996=100). Based on revised data, this index increased by 0.2 percent in July and decreased by 0.3 percent in June. During the six-month period through August, the coincident index decreased 0.3 percent.

LAGGING INDICATORS. The lagging index decreased 0.3 percent to 104.5 (1996=100) in August. Four of the seven components of the lagging index decreased in August. The negative contributors to the index - from the largest negative contributor to the smallest - are average duration of unemployment, commercial and industrial loans outstanding*, ratio of consumer installment credit to income*, and the average prime rate charged by banks. Change in CPI for services is the largest positive contributor to the index followed by the change in labor costs per unit of output*. The ratio of manufacturing and trade inventories to sales* held steady for the month of August. Based on revised data, the lagging index decreased 0.7 percent in July and decreased 0.8 percent in June.

DATA AVAILABILITY. The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available "as of" 12 Noon on August 17, 2001. Some series are estimated as noted below.

NOTES: Series in the leading index that are based on The Conference Board estimates are manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods, and the personal consumption expenditure deflator for money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, and the personal consumption expenditure deflator for commercial and industrial loans outstanding.


Professional Contacts at The Conference Board:
Mike Fort: 212-339-0402
Indicators Program: 212-339-0312

Media Contacts:
Randy Poe: 212-339-0234
Frank Tortorici: 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, coincident, and lagging indexes are essentially composite averages of between four and ten individual leading, coincident, or lagging 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. The cyclical turning points in the lagging index generally have occurred after 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 shows recession warnings are best determined by looking for the annualized rate of change in the leading index to fall below 3.5 percent at the same time the diffusion index is below 50 percent over a six-month span.

* See notes under data availability.

U.S. Composite Indexes: Components and Standardization Factors
 Leading Index Factor
1. Average weekly hours, manufacturing .1836
2. Average weekly initial claims for unemployment insurance .0243
3. Manufacturers' new orders, consumer goods and materials .0490
4. Vendor performance, slower deliveries diffusion index .0275
5. Manufacturers' new orders, nondefense capital goods .0129
6. Building permits, new private housing units .0187
7. Stock prices, 500 common stocks .0308
8. Money supply, M2 .3033
9. Interest rate spread, 10-year Treasury bonds less federal funds .3317
10. Index of consumer expectations .0182

Coincident Index
1.Employees on nonagricultural payrolls.4492
2.Personal income less transfer payments.2626
3.Industrial production.1204
4.Manufacturing and trade sales.1677

Lagging Index
1.Average duration of unemployment.0329
2.Inventories to sales ratio, manufacturing and trade.2023
3.Labor cost per unit of output, manufacturing.0545
4.Average prime rate.2169
5.Commercial and industrial loans.1318
6.Consumer installment credit to personal income ratio.1961
7.Consumer price index for services.1655

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. When one or more components are missing, the other factors are adjusted proportionately to ensure that the total continues to sum to 1. The index standardization factors are used to make volatility of the percent changes comparable for the three indexes.

These factors were revised effective with this release for August, 2001, and all historical values for the three composite indexes were revised at this time to reflect the changes. (Under normal circumstances, updates to the leading, coincident, and lagging indexes only incorporate revisions to data over the past six months.) The factors for the leading index were calculated using 1984-1999 as the sample period for measuring volatility. A separate set of factors for the 1959-1983 period is available upon request. The primary sample period for the coincident and lagging indexes was 1959-1999. For additional information on the standardization factors and the index methodology see: "Benchmark Revisions in the Composite Indexes," Business Cycle Indicators December 1997 and "Technical Appendix: Calculating the Composite Indexes" Business Cycle Indicators December 1996, or the Web site: www.globalindicators.org.

To address the problem of lags in available data, those leading, coincident and lagging indicators that are not available at the time of publication are estimated using statistical imputation. An autoregressive model is used to estimate each unavailable component. The resulting indexes are therefore constructed using real and estimated data, and will be revised as the unavailable data during 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 data such as stock prices, interest rate spread, and manufacturing hours that are available sooner than other data on real aspects of the economy such as manufacturers' new orders. Empirical research by The Conference Board suggests that there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.

U.S. Leading Economic Indicators news release schedule for 2001:

Monday, October 22 for September 2001 data
Tuesday, November 20 for October 2001 data
Wednesday, December 19 for November 2001 data

All releases are at 10:00AM ET.

ABOUT THE CONFERENCE BOARD. The Conference Board is the premier business membership and research network founded in 1916. It 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. Its Economics Program, under the direction of Chief Economist Gail Fosler, is a recognized source of forecasts, analysis and objective indicators such as Leading Economic Indicators and Consumer Confidence.

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 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.

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