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FOR RELEASE: 10:00 A.M. ET, MONDAY, AUGUST 19, 2002

U.S. COMPOSITE INDEXES FOR JULY 2002

The Press Release in a PDF file

In light of substantial data revisions announced by the Bureau of Economic Analysis (BEA) in July, The Conference Board decided to undertake a mid-year benchmark of its composite economic indexes. This maintenance procedure, typically done in January, had no effect on the peak and trough dates of the composite indexes. However, in the coincident index, the data revisions increased the depth of the most recent recession. (Due to these revisions, month-to-month changes in the composite indexes are no longer comparable to those issued prior to this benchmark.)


The Conference Board announced today that the U.S. leading index decreased 0.4 percent, the coincident index increased 0.1 percent, and the lagging index increased 0.1 percent in July.

  • Although the incorporated data revisions deepened the depth of the decline in the coincident index in the most recent recession, the decline of this index remains mild by historical standards. The decline from the peak of the coincident index in December 2000 to its trough in November 2001 is only 1.7 percent compared to an average decline of 3.3 percent from peak to trough in the previous six recessions.
  • Modest gains in the coincident index in the last five months reflect the slow pace of the economic recovery. To date, the pre-recession peak of the coincident index has not yet been reached.
  • Although the leading index declined in three of the last six months, its six-month diffusion index, which measures the proportion of the components that are rising, remains above 50 percent. This month's decline in the leading index was primarily caused by weak equity markets and lower consumer expectations.

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

The leading index now stands at 111.7 (1996=100). This index decreased 0.2 percent in June and increased 0.6 percent in May. During the six-month span through July, the leading index decreased 0.1 percent, with six of the ten components advancing (diffusion index, six-month span equals 55 percent).

The next release is scheduled for September 23, 2002 at 10 A.M. ET.

COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in July. The largest contributor to the index was personal income less transfer payments*, followed by industrial production and manufacturing and trade sales*. Employees on nonagricultural payrolls held steady in July. With the increase in July, the coincident index now stands at 115.0 (1996=100). This index increased 0.3 percent in June and increased 0.2 percent in May. During the six-month period through July, the coincident index increased 0.6 percent.

LAGGING INDICATORS. The lagging index increased 0.1 percent to 100.7 (1996=100) in July. Two of the seven components of the lagging index increased in July. The positive contributors to the index - beginning with the larger positive contributor - were average duration of unemployment and change in labor cost per unit of output*. The two negative contributors to the index - beginning with the larger negative contributor - were commercial and industrial loans outstanding* and change in CPI for services. Ratio of consumer installment credit to personal income*, ratio of manufacturing and trade inventories to sales*, and average prime rate charged by banks held steady in July. The lagging index decreased 0.3 percent in June and in May.

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 16, 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, and the personal consumption expenditure deflator for commercial and industrial loans outstanding.

# # #

Professional Contacts at The Conference Board:
Ken Goldstein: 212-339-0331
Ataman Ozyildirim: 212-339-0399
Indicators Program: 212-339-0330

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.0261
3.Manufacturers' new orders, consumer goods and materials.0496
4.Vendor performance, slower deliveries diffusion index.0276
5.Manufacturers' new orders, nondefense capital goods.0130
6.Building permits, new private housing units.0191
7.Stock prices, 500 common stocks.0308
8.Money supply, M2.3038
9.Interest rate spread, 10-year Treasury bonds less federal funds.3305
10.Index of consumer expectations.0183

Coincident Index
1.Employees on nonagricultural payrolls.5230
2.Personal income less transfer payments.2176
3.Industrial production.1407
4.Manufacturing and trade sales.1187

Lagging Index
1.Average duration of unemployment.0378
2.Inventories to sales ratio, manufacturing and trade.1257
3.Labor cost per unit of output, manufacturing.0624
4.Average prime rate.2521
5.Commercial and industrial loans.1300
6.Consumer installment credit to personal income ratio.1992
7.Consumer price index for services.1929

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 July 2002, 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:

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 212-339-0330 or email indicators@conference-board.org.

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