Leading Economic Indicators

The index of leading economic 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

The Conference Board reported a gain for the second straight month in April, after posting declines for five straight months. The US leading indicators index rose 0.1%, matching the gain posted in March. The index, recovering from its lows in February, is still down 1.15% (2.3% annual pace) in the last six months.

Six of the components were positive for the month. The biggest positive contributor was stock prices. This is evident as the market has recovered substantially since the Bear Stearns debacle in March. The interest rate spread, building permits, initial jobless claims, vendor performance, and new orders for consumer goods all came in as positive for the month.

Consumer expectations, weekly manufacturing hours, and new orders for capital goods were the three negative contributors for the month. Real money supply held steady.

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