Thursday, March 20, 2008

Leading Indicators

The 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 February, the Conference Board reported a decline in the US index of 0.3%. The index declined for the fifth straight month, continuing its downward slope from its high back in July 2007. Over the past six months, the leading indicator index is down 1.5%.

Four of the ten indicators were positive for the month- real money supply, interest rate spread, and new orders for both capital and consumer goods. The rest were negative, led by weekly initial jobless claims and building permits.

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