Leading Indicators Decline in May

[HenryTo]

Quote: "He noted that six of the eight countries for which the Conference Board monitors a leading economic index have either showed declines or slower growth."

And: "The Conference Board reported Monday that only one of the 10 components of the leading index -- stock prices -- increased in May."
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Leading Indicators Decline in May
Monday June 20, 12:04 pm ET
By Anne D'Innocenzio, AP Business Writer
Leading Indicators Decline in May, Sign Slower Economic Growth May Lie Ahead This Year

NEW YORK (AP) -- A closely watched gauge of future business activity fell more than expected in May, indicating slower economic growth may lie ahead later this year, a private research group announced Monday.

The New York-based Conference Board reported that its Composite Index of Leading Indicators fell 0.5 percent last month to 114.1. The decline was more than the 0.2 percent drop that analysts had expected.

The May decline follows a revised unchanged level in April and a 0.6 percent decline in March.

In a statement, Ken Goldstein, the board's labor economist, said that the indicators suggest "slower growth setting in during the third quarter." But he added that this is "not just a domestic phenomenon." He noted that six of the eight countries for which the Conference Board monitors a leading economic index have either showed declines or slower growth.

Mark Vitner, senior economist at Wachovia Corp. in Charlotte, N.C., said that he's not worried about the decline, adding "this is a sign of a slower economy, but not anything more serious than that."

Vittner noted that a good part of the weakening in the leading indicators over the past few months has been the decline in financial components of the index -- which include an interest rate comparison and real money supply -- as a result of rising interest rates.

The Conference Board reported Monday that only one of the 10 components of the leading index -- stock prices -- increased in May. The other components that dragged down the index included building permits, vendors performances, the index of consumer expectations, manufacturers' new orders for nondefense capital goods, consumer goods and materials and average weekly initial claims for unemployment insurance.

Vittner added that the Federal Reserve's moves to push short-term interest rates higher over the past year to keep inflation in check is working, and "we are nearing the point that they will leave it unchanged, and let the economy regain momentum." He expects the Fed to raise rates when policymakers meet in June and August.

The index of coincident indicators, which measures the current economy, rose 0.2 percent in May, to 119.7. The gain followed a 0.2 percent increase in April, and no change in March. All four components that make up the coincident index increased in May, led by industrial production. The others were personal income less transfer payments, employees on nonagricultural payrolls and manufacturing and trade sales.

The index of lagging indicators, which looks back to the past six months, increased 0.3 percent to 99.8. That followed a 0.1 percent rise in April, and a 0.2 percent decline in March. Four of the seven components strengthened, led by average duration of unemployment.The negative contributor was a change in the consumer price index for services. The change in labor cost per unit of output and ratio of consumer installment credit to personal income held steady.

On Wall Street, stocks sank as investors appeared to focus on the possible impact of rising oil prices.

In late morning trading, the Dow Jones industrial average fell 35.52, or 0.3 percent, to 10,587.55. The Standard & Poor's 500 index lost 3.68, or 0.3 percent, at 1,213.28, and the Nasdaq composite index dropped 8.95, or 0.4 percent, to 2,081.16.

[Dubious]

[b]Revisions in U.S. Leading Indicators[/b]

The July 2005 release will incorporate two major revisions to the composite index of economic indicators (LEI): 1) a new method for calculating the contribution of the yield spread in the LEI and 2) a trend adjustment to the LEI. The new measure of the yield spread improves the performance of the LEI by better reflecting the way the yield spread anticipates cyclical economic turning points. The trend adjustment facilitates interpretation and use of the LEI.