Leading Indicator Index Declines

MBA (7/22/2008 ) Velz, Orawin
The Conference Board’s index of leading indicators—a gauge of future business activity three to six months ahead—edged down 0.1 percent in June.
May’s figure was revised downward to a decline of 0.2 percent from a 0.1 percent increase. The index has reached the lowest level since November 2004. According to The Conference Board, the economy has shown no sign of strength, given the financial crisis and the housing slump, high gasoline and food prices, weak consumer confidence and a weak dollar.

The index of leading indicators is designed to forecast economic activity and turning points in the business cycle based on 10 economic components. Four of the 10 components increased during the month; these included housing permits and the yield spread. Six negative contributors included declining stock prices, higher unemployment claims and a drop in the money supply.

A rush to obtain residential building permits in June ahead of a change in building codes in New York in July helped temper the decline in the index. Housing permits added almost one-third of a percentage point to growth in the index in June. Permits will likely contract and act as a negative contributor to the index in the coming months.

Overall, the index of leading indicators supported other recent economic reports and Federal Reserve Board Chairman Ben Bernanke’s testimony last week that there are significant downside risks to economic growth.