Thursday, February 21, 2008

Leading Economic Indicators

TThe composite index of leading indicators is used to predict the direction of the economy's movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. The ten components are:

1. the average weekly hours worked by manufacturing workers
2. the average number of initial applications for unemployment insurance
3. the amount of manufacturers' new orders for consumer goods and materials
4. the speed of delivery of new merchandise to vendors from suppliers
5. the amount of new orders for capital goods unrelated to defense
6. the amount of new building permits for residential buildings
7. the S&P 500 stock index
8. the inflation-adjusted monetary supply (M2)
9. the spread between long and short interest rates
10. consumer sentiment

For the month of January, the Conference Board reported a decline in the US index of 0.1%. The index declined for the fourth straight month, continuing its downward slope from its high back in July 2007. The index has fallen 2.0% (4.0% annualized) since that high.

4 of the components were positive for the month. The biggest contributor was real money supply. This, of course, makes a lot of sense, considering the fact that the Fed is cutting rates with the sole purpose of injecting more money into the economy. Consumer expectations as a positive component was a surprise, though, as past reports have refuted this claim. Might this be indicating a shift in the consumer psyche, from one which is solely negative to one which is preparing for a brighter future?

Stock prices and building permits were the top two negative contributors. Average weekly hours and new orders for consumer goods held steady.

See Full Report.

No comments: