Human Resources: The Conference Board® U.S. Business Cycle IndicatorsSM

Employees on nonagricultural payrolls

Personal income less transfer payments

Industrial production

Manufacturing and trade sales

The Conference Board announced today that the U.S. leading index increased 0.2 percent, the coincident index increased 0.1 percent and the lagging index increased 0.2 percent in October.

The leading index increased again in October, and there was an upward revision to September's small increase. From April to October, the leading index fell by 0.2 percent (a -0.4 percent annual rate). Housing permits continued to make the largest negative contribution to the leading index in this period, followed by vendor performance, offsetting large positive contributions from real money supply (M2) and consumer expectations. Strengths and weaknesses have been roughly balanced among the leading indicators in recent months.

The coincident index increased in October, and September's unchanged value was revised upward as a result of data revisions in all its components. This measure of current economic activity has been increasing steadily since September 2005, although its growth moderated in recent months. From April to October, the coincident index grew 1.0 percent (a 2.0 percent annual rate).

The leading index has been fluctuating around a slightly downward short-term trend in recent months, with increases in September and October, but declines in July and August. As a result, it has fallen 0.6 percent below its most recent high reached in January. At the same time, real GDP growth slowed to a 1.6 percent (annual) rate in the third quarter, following a 5.6 percent gain in the first quarter and a 2.6 percent gain in the second quarter. The current behavior of the leading index suggests that slow economic growth is likely to continue in the near term.

LEADING INDICATORS. Six of the ten indicators that make up the leading index increased in October. The positive contributors – beginning with the largest positive contributor – were real money supply*, index of consumer expectations, stock prices, average weekly manufacturing hours, manufacturers’ new orders for consumer goods and materials*, and average weekly initial claims for unemployment insurance (inverted). The negative contributors – beginning with the largest negative contributor – were vendor performance, building permits, manufacturers’ new orders for nondefense capital goods*, and the interest rate spread.

The leading index now stands at 138.3 (1996=100). Based on revised data, this index increased 0.4 percent in September and decreased 0.3 percent in August. During the six-month span through October, the leading index decreased 0.2 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty-five percent).

COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in October. The positive contributors to the index – beginning with the largest positive contributor – were employees on nonagricultural payrolls, industrial production, and manufacturing and trade sales*. Personal income, less transfer payments remained the same.

The coincident index now stands at 123.7 (1996=100). This index increased 0.2 percent in September and increased 0.2 percent in August. During the six-month period through October, the coincident index increased 1.0 percent.

The next release is scheduled for December 21, Thursday at 10 A.M. ET.

LAGGING INDICATORS. The lagging index stands at 124.1 (1996=100) in October, with three of the seven components advancing. The positive contributors to the index – beginning with the largest positive contributor – were average duration of unemployment (inverted), change in labor cost per unit of output*, and ratio of consumer installment credit to personal income*. The negative contributors – beginning with the largest negative contributor – were commercial and industrial loans outstanding* and change in CPI for services. The ratio of manufacturing and trade inventories to sales* and average prime rate charged by banks* held steady in October. Based on revised data, the lagging index increased 0.2 percent in September and remained unchanged in August.

DATA AVAILABILITY AND NOTES.

The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available “as of” 12 Noon on November 17, 2006. Some series are estimated as noted below.

* Series in the leading index that are based on The Conference Board estimates are manufacturers’ new orders for consumer goods and materials, manufacturers’ new orders for nondefense capital goods, and the personal consumption expenditure used to deflate the money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.

The procedure used to estimate the current month’s personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month’s consumer price index when it is available before the release of the U.S. Leading Economic Indicators.

Effective with the September 18, 2003 release, the method for calculating manufacturers’ new orders for consumer goods and materials (A0M008) and manufacturers’ new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.

Effective with the January 22, 2004 release a programming error in the calculation of the leading index -- in place since January 2002 -- has been corrected. The cyclical behavior of the leading index was not affected by either the calculation error or its correction, but the level of the index in the 1959-1996 period is slightly higher.

Professional Contacts at The Conference Board: Media Contacts:

Ken Goldstein: 212-339-0331 Randy Poe: 212-339-0234

Indicators Program: 212-339-0330 Frank Tortorici: 212-339-0231

Email: indicators[at]conference-board.org

Website: www.conference-board.org/economics/bci

THE CYCLICAL INDICATOR APPROACH. The composite indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging indexes are essentially composite averages of between four and ten individual leading, coincident, or lagging indicators. (See page 3 for details.) They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component—primarily because they smooth out some of the volatility of individual components.

Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, while the cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity. The cyclical turning points in the lagging index generally have occurred after those in aggregate economic activity.

U.S. Composite Indexes: Components and Standardization Factors

Leading Index Factor

1	Average weekly hours, manufacturing	0.2542
2	Average weekly initial claims for unemployment insurance	0.0333
3	Manufacturers' new orders, consumer goods and materials	0.0753
4	Vendor performance, slower deliveries diffusion index	0.0698
5	Manufacturers' new orders, nondefense capital goods	0.0186
6	Building permits, new private housing units	0.0266
7	Stock prices, 500 common stocks	0.0377
8	Money supply, M2	0.3535
9	Interest rate spread, 10-year Treasury bonds less federal funds	0.1019
10	Index of consumer expectations	0.0291

Coincident Index

Lagging Index

1	Average duration of unemployment	0.0373
2	Inventories to sales ratio, manufacturing and trade	0.1221
3	Labor cost per unit of output, manufacturing	0.0623
4	Average prime rate	0.2777
5	Commercial and industrial loans	0.1137
6	Consumer installment credit to personal income ratio	0.1931
7	Consumer price index for services	0.1937

ABOUT THE CONFERENCE BOARD. The Conference Board is the premier business membership and research network founded in 1916. It has become a global leader in helping executives build strong professional relationships, expand their business knowledge and find solutions to a wide range of business challenges. Its Economics Program, under the direction of Chief Economist Gail Fosler, is a recognized source of forecasts, analysis and objective indicators such as Leading Economic Indicators and Consumer Confidence.

This role is part of a long tradition of research and education that stretches back to the compilation of the first continuous measure of the cost of living in the United States in 1919. In 1995, The Conference Board assumed responsibility for computing the composite indexes from the U.S. Department of Commerce. The Conference Board now produces business cycle indexes for the U.S., Australia, France, Germany, Korea, Japan, Mexico, Spain and the U.K. To subscribe to any of these indexes, please visit www.conference-board.org/economics/bci or contact the customer service department at 212-339-0345 or email indicators[at]conference-board.org.