Leading Economic Indicators Up Six Straight Months

The Index of Leading Economic Indicators rose again in September, making six straight months the index has risen and providing hope that an economic recovery is in the offing.

The Conference Board reported that the index rose 1.0 percent in September, following a 0.4 percent gain in August and a 1.0 percent gain in July. The past six months mark the strongest increase in the index since 1983, with the index increasing at an annual rate of 11.8 percent during that period, on the heels of a 5.3 percent decline, in annual terms, over the previous half year.

"The LEI has risen for six consecutive months and the coincident economic index has increased in two of the last three months, said Ken Goldstein, a Conference Board economist. " These numbers strongly suggest that a recovery is developing. However, the intensity of that recovery will depend on how much, and how soon, demand picks up."

The Index of Leading Economic Indicators is used as a predictor of future economic activity; the coincident index is a gage of current economic conditions. Plotted on a graph, the leading indicators show a steady decline since July 2007, then trends upward sharply beginning in March of this year. The coincident indicators began to fall steadily after December 2007, which is considered the beginning of the recession, but has flattened out and even trended upward slightly the last four months.

Eight of the 10 indicators in the leading index showed positive trends in September, with the interest rate spread, consumer expectations, initial unemployment claims and stock prices showing the strongest improvement, in that order. The two areas that declined were weekly manufacturing hours and building permits.

The coincident index, the indicator of current conditions, was unchanged in September following small increases the previous two months. Three of the four indicators making up that index rose, but rising unemployment balanced out gains in industrial production, personal income and manufacturing and trade sales in calculating the index.

The Index of Lagging Indicators, which tracks those parts of the economy that typically are the last to respond to changing economic conditions, continued to fall in September, declining 0.3 percent after drops of 0.2 percent in August and 0.6 percent in July. The lagging index includes such factors as outstanding commercial and industrial loans, unemployment duration and the ratio of inventories to sales.