full text:
Fifth Consecutive Decline; Coincident Index Flat
The Conference Board reports today that the Composite Index of Leading Economic Indicators declined 0.3 percent in February, following a 0.4 percent decline in January, and a 0.1 percent decline in December. The Leading Index has declined for the fifth straight month.
Says Ken Goldstein, Labor Economist at The Conference Board: "The economy may be grinding to a halt. The Leading Index has declined five months in a row, and the Coincident Index stopped increasing in October. Growth will be weak this spring. A small contraction in economic activity cannot be ruled out. The economic signals are flashing yellow."
The Conference Board reports that the Coincident Index was unchanged in February, following two straight months of no change and a 0.2 percent decline in November. The Lagging Index increased 0.2 percent in February, following a 0.1 percent increase in January, and a 0.3 percent increase in December.

  -- The leading index declined for the fifth straight month in February.
     Initial claims for unemployment insurance (inverted), building permits,
     the vendor performance diffusion index, and consumer expectations made
     large negative contributions to the index this month, more than
     offsetting large positive contributions from money supply (real M2)*
     and interest rate spread. The leading index has declined 1.5 percent
     (about a 3.0 percent annual rate) during the six-month span from August
     2007 through February 2008. In addition, only two components out of ten
     have increased from August to February.

  -- The coincident index was unchanged for the third consecutive month in
     February. Index levels were revised slightly lower for months November
     2007 through January 2008, due primarily to downward revisions to
     personal income less transfer payments. Employment has contributed
     negatively to the index for two consecutive months. The coincident
     index was unchanged between August 2007 and February 2008, and the
     strengths among its components have become less widespread in recent
     months. The lagging index increased again in February, and as a result,
     the coincident to lagging index has continued to decrease.

  -- The leading index has been on a downtrend since the middle of 2007, and
     the weaknesses among its components have become very widespread in the
     last three months; the last time the leading index worsened for five
     consecutive months was in early 2001. Meanwhile, the growth in the
     coincident index has stalled in recent months, after gradually slowing
     throughout 2007. At the same time, real GDP growth fell to 0.6 percent
     in the fourth quarter of 2007, down from a 4.9 percent annual rate in
     the third quarter and an average of 2.2 percent, annual rate, in the
     first half of 2007. The current behavior of the composite indexes
     suggests that increasing risks for economic weakness are likely to
     continue in the near term.

LEADING INDICATORS
Four of the ten indicators that make up the leading index increased in February. The positive contributors -- beginning with the largest positive contributor -- were real money supply*, interest rate spread, manufacturers' new orders for nondefense capital goods* and manufacturers' new orders for consumer goods and materials*. The negative contributors -- beginning with the largest negative contributor -- were average weekly initial claims for unemployment insurance (inverted), building permits, vendor performance, index of consumer expectations, and stock prices. Average weekly manufacturing hours held steady in February.
The leading index now stands at 135.0 (1996=100). Based on revised data, this index decreased 0.4 percent in January and decreased 0.1 percent in December. During the six-month span through February, the leading index decreased 1.5 percent, with two out of ten components advancing (diffusion index, six-month span equals 20 percent).
COINCIDENT INDICATORS
Two of the four indicators that make up the coincident index increased in February. The positive contributors to the index -- beginning with the larger positive contributor -- were personal income less transfer payments*, and manufacturing and trade sales*. The negative contributors were industrial production and employees on nonagricultural payrolls.
The coincident index now stands at 124.9 (1996=100). This index remained unchanged in January and December. During the six-month period through February, the coincident index remained unchanged.
LAGGING INDICATORS
The lagging index stands at 131.2 (1996=100) in February, with five of the seven components advancing. The positive contributors to the index -- beginning with the largest positive contributor -- were average duration of unemployment (inverted), commercial and industrial loans outstanding*, change in CPI for services, ratio of consumer installment credit to personal income*, and change in labor cost per unit of output*. The negative contributor was the average prime rate charged by banks. The ratio of manufacturing and trade inventories to sales* held steady in February. Based on revised data, the lagging index increased 0.1 percent in January and increased 0.3 percent in December.
DATA AVAILABILITY AND NOTES:
The data series used by The Conference Board to compute the three composite indexes and reported in the table in this release are those available "as of" 12 Noon on March 18, 2008. Some series are estimated as noted below.
* 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 used to deflate the 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, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.
The procedure used to estimate the current month's personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month's consumer price index when it is available before the release of the U.S. Leading Economic Indicators.
Effective with the September 18, 2003 release, the method for calculating manufacturers' new orders for consumer goods and materials (A0M008) and manufacturers' new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.
Next month's release of the U.S. Leading Economic Indicators and Related Composite Indexes will incorporate annual benchmark revisions to the composite indexes which will bring them up-to-date with revisions in the source data. The indexes are updated throughout the year, but only for the previous six months. Data revisions that fall outside of the moving six-month window are not incorporated until the annual benchmark revision is made and the entire histories of the indexes are recomputed. In the past, these benchmark revisions have been normally done in January. However, because a number of underlying data series, such as industrial production and employment, underwent benchmark revisions in early 2008, by the source agencies, a later annual benchmark for the LEI and related composite indexes allows for the incorporation of more up to date component data.
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