The coincident index, a measure of current economic activity, fell in July after increasing slightly in June. Substantial declines in industrial production, manufacturing sales and retail sales more than offset a modest increase in employment. During the past six months, the coincident index decreased by 0.2 percent (about a -0.4 percent annual rate), the first time its six-month growth rate became negative since the second quarter of 2005 and well below the 2.6 percent annual rate of increase which prevailed between July 2007 and January 2008. Additionally, the strengths and weaknesses among the coincident indicators have become roughly balanced in recent months.
The leading index has been trending downward since July 2007 and this decline has become steeper so far in 2008. After growing steadily throughout 2006 and 2007, the coincident index has become essentially flat since the beginning of this year. At the same time, real GDP grew at a 1.5 percent average annual rate during the first two quarters of 2008 (including a -2.0 percent annual rate for the second quarter). Taken together, the recent behavior of the composite indexes suggests that risks for further economic weakness remain elevated.
LEADING INDICATORS
Two of the seven components in the leading index increased in July. The positive contributors to the leading index - in order from the largest positive contributor to the smallest - are the inventory change series and gross enterprises and properties income. Negative contributors - in order from largest to smallest - are new orders in investment goods industries, stock prices, consumer confidence, yield spread and new residential construction orders.
With the 1.4 percent decrease in July, the leading index now stands at 92.5 (1990=100). Based on revised data, this index declined 1.0 percent in June and declined 1.1 percent in May. During the six-month span through July, the leading index decreased 5.3 percent, with two of the eight components increasing (diffusion index, six-month span equals 35.7 percent).
COINCIDENT INDICATORS
One of the four components that make up the coincident index increased in July. The lone positive contributor to the coincident index was employed persons. Industrial production, manufacturing sales, and retail trade declined in July.
With the 0.4 percent decrease in July, the coincident index now stands at 110.6 (1990=100). Based on revised data, this index increased 0.1 percent in June and decreased 0.1 percent in May. During the six-month period through July, the coincident index decreased -0.2 percent, with two of the four components increasing (diffusion index, six-month span equals 50.0 percent).
