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FOR RELEASE: 10:00 A.M. ET, THURSDAY, MARCH 21, 2002

U.S. COMPOSITE INDEXES FOR FEBRUARY 2002

The Press Release in a PDF file

The Conference Board announced today that the U.S. leading index held steady, the coincident index increased by 0.2 percent, and the lagging index decreased by 0.3 percent in February.

  • Even with a flat month-to-month growth in February, the leading index is still up 2.4 percent from its value six months ago in August 2001 and up 3.1 percent from its value a year ago.
  • The modest gains in the coincident index appear to be gaining momentum. Should this trend continue, the trough of the recession would most likely be November 2001, making the most recent economic contraction very short and certainly the mildest in U.S. history.
  • The coincident-to-lagging ratio, which has historically led business cycles, is up for the fifth consecutive month in February. This is another signal that an economic recovery is underway.

LEADING INDICATORS. Five of the ten indicators that make up the leading index increased in February. The positive contributors to the leading index - from the largest positive contributor to the smallest - were real money supply*, average weekly initial claims for unemployment insurance (inverted), average weekly manufacturing hours, building permits, and vendor performance. The four negative contributors to the index, beginning with the largest negative contributor, were stock prices, index of consumer expectations, interest rate spread, and manufacturers' new orders for consumer goods and materials*. Manufacturers' new orders for nondefense capital goods* held steady in February.

The leading index now stands at 112.4 (1996=100). Based on revised data, this index increased 0.8 percent in January and increased 1.3 percent in December. During the six-month span through February, the leading index increased 2.4 percent, with seven of the ten components advancing (diffusion index, six-month span equals 75 percent).

COINCIDENT INDICATORS. All four indicators that make up the coincident index increased in February. The largest contributors to the index were industrial production and personal income less transfer payments*, followed by manufacturing and trade sales*, and finally employees on nonagricultural payrolls.

* See notes under data availability

The next release is scheduled for April 18, 2002 at 10:00 A.M. ET

With the increase in February, the coincident index now stands at 115.6 (1996=100). This index held steady in January and increased 0.1 percent in December. During the six-month period through February, the coincident index decreased 0.4 percent.

LAGGING INDICATORS. The lagging index decreased 0.3 percent to 102.3 (1996=100) in February. Two of the seven components of the lagging index decreased in February. The negative contributors to the index - beginning from the larger negative contributor - were commercial and industrial loans outstanding* and average duration of unemployment. The positive contributors to the index - beginning with the largest positive contributor to the smallest - were change in labor cost per unit of output*, ratio of consumer installment credit to personal income*, change in CPI for services*, and ratio of manufacturing and trade inventories to sales*. Average prime rate charged by banks held steady in February. The lagging index decreased 0.2 percent in January and decreased 0.3 percent in December.

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 March 20, 2002. 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, change in CPI for services, and the personal consumption expenditure deflator for commercial and industrial loans outstanding.

# # #

Professional Contacts at The Conference Board:
Ken Goldstein: 212-339-0331
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 IndexFactor
1.Average weekly hours, manufacturing.1812
2.Average weekly initial claims for unemployment insurance.0241
3.Manufacturers' new orders, consumer goods and materials.0456
4.Vendor performance, slower deliveries diffusion index.0277
5.Manufacturers' new orders, nondefense capital goods.0131
6.Building permits, new private housing units.0191
7.Stock prices, 500 common stocks.0310
8.Money supply, M2.3069
9.Interest rate spread, 10-year Treasury bonds less federal funds.3330
10.Index of consumer expectations.0185

Coincident Index
1.Employees on nonagricultural payrolls.4805
2.Personal income less transfer payments.2814
3.Industrial production.1292
4.Manufacturing and trade sales.1090

Lagging Index
1.Average duration of unemployment.0367
2.Inventories to sales ratio, manufacturing and trade.1225
3.Labor cost per unit of output, manufacturing.0611
4.Average prime rate.2454
5.Commercial and industrial loans.1265
6.Consumer installment credit to personal income ratio.2209
7.Consumer price index for services.1869

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.

These factors were revised effective on the release for December 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 1984-2000 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 1959-2000. 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 2002:

April 18, Thursday for March 2002 data
May 20, Monday for April 2002 data
June 20, Thursday for May 2002 data
July 18, Thursday for June 2002 data
August 19, Monday for July 2002 data
September 23, Monday for August 2002 data
October 21, Monday for September 2002 data
November 21, Thursday for October 2002 data
December 19, Thursday for November 2002 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, 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.

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