Key U.S. economic index on rollercoaster

July 23, 2012
The Conference Board index reflects "steady but soft" pace of economic activity

The Conference Board’s Leading Economic Index(LEI) for the U.S. declined 0.3% in June to 95.6. That follows a 0.4% increase in May and also a 0.1% decline in April. And it is indicative of an economy that is growing “steady but soft.”

“The U.S. LEI declined in two of the last six months, and its six-month growth rate has eased in the last three months,” said Ataman Ozyildirim, an economist at The Conference Board. “The strengths among the leading indicators have become less widespread as consumer expectations and manufacturing new orders offset gains in the financial, labor and construction-related components. Meanwhile, the coincident economic index, a measure of current economic conditions, has risen slowly but steadily in the last three months.”

According to Ken Goldstein, also an economist at The Conference Board, the U.S. economy is growing albeit very slowly. “The LEI is pointing to no strengthening over the next few months, as the economy continues to sail through strong headwinds domestically and internationally,” he explained.

Goldstein also pointed out that The Conference Board’s Coincident Economic Index (CEI) for the U.S. increased 0.2% in June to 104.5, following a 0.2% increase in May and a 0.4% rise in April. “The CEI basically reflects the steady but soft pace of overall economic activity,” he noted.

In addition, The Conference Board’s Lagging Economic Index(LAG) rose 0.2% in June to 115.5, following a 0.3% increase in May, and a 0.6% hike in April.

The Conference Board advised that itscomposite economic indexes are elements of an analytic system designed to signal peaks and troughs in the business cycle.

“The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators,” the Board explained. “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.”

The components of The Conference Board Leading Economic Index for the U.S. include:

·         Average weekly hours for manufacturing

·         Average weekly initial claims for unemployment insurance

·         Manufacturers’ new orders, consumer goods and materials

·         The ISM new orders index

·         Manufacturers' new orders, nondefense capital goods excluding aircraft orders

·         Building permits, new private housing units

·         Stock prices, 500 common stocks

·         Leading Credit Index

·         Interest rate spread, 10-year Treasury bonds less federal funds

·         Average consumer expectations for business conditions

What’s more, The Conference Board this month also reported that its Measure of CEO Confidence decreased in the second quarter--- and that after having improved n the first. The Measure now reads 47, down from 63 for last quarter. A reading of more than 50 points reflects more positive than negative responses.  

 “CEOs began the year quite upbeat, but the lackluster performance of the economy so far, and expectations of more of the same, have clearly impacted attitudes,” pointed out Lynn Franco, director of Economic Indicators at The Conference Board. “On a positive note, CEOs remain confident profits will continue to increase, driven primarily by market/demand growth.”

According to Franco, the assessment of current economic conditions by CEOs has turned “considerably negative,” with only 17% claiming conditions have improved compared to six months ago.

A more negative attitude was also expressed regarding CEOs’ appraisals of their own industries— this time out, just 22% say conditions have improved compared with 42% in the first quarter.

The Conference Board also found that CEO optimism about the short-term outlook declined from the first quarter. Currently, only 20% expect economic conditions to improve over the next six months, which is down from 59% in the first quarter.

CEO expectations for their own industries have also turned pessimistic, with just 25% of the respondents anticipating an improvement in conditions in the months ahead. That’s down from approximately 44% last quarter.  

The Conference Board is a global, independent and nonprofit membership/research association. The next release of its U.S. economic indexes is set for August 17th.

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