The leading index increased in July, following a slight decline in June. With July's increase, the leading index grew 2.6 percent (about a 5.2 percent annual rate) from January to July. In addition, the strengths among the leading indicators have been more widespread than weaknesses in recent months.
The coincident index remained unchanged in July. Despite some short term volatility, this index of current economic activity has been on a slightly rising trend since mid-2003 and it continues to grow at about a 2.0 percent annual rate in recent months. The strengths among the coincident indicators have also been more widespread in recent months.
The growth of the leading index picked up to about a 4.0 to 5.0 percent annual rate in the first half of the year, up from about a 3.0 percent annual rate in the second half of last year. At the same time, real GDP increased at a 4.7 percent annual rate in the second quarter, following a 2.0 percent annual rate in the first quarter. The recent behavior of the leading index suggests that economic growth is likely to continue at a moderate to strong rate in the near term.
LEADING INDICATORS. Six of the seven components of the leading index increased in July. The positive contributors to the index — in order from the largest positive contributor to the smallest — are the yield spread, industrial new orders, building permits (residential), the stock price index, production expectations, and the inverted new unemployment claims. The negative contributor to the index is the ratio of the deflator of manufacturing value added to unit labor cost for manufacturing*.
With the increase of 0.5 percent in July, the leading index now stands at 128.3 (1990=100). Based on revised data, this index declined 0.2 percent in June and increased 0.2 percent in May. During the six-month span through July, the leading index increased 2.6 percent, and six of the seven components increased (diffusion index, six-month span equals 85.7 percent).
COINCIDENT INDICATORS. Two of the four components of the coincident index increased in July. The positive contributors to the index were employment* and wage and salaries*. Industrial production and personal consumption declined in July.
Holding steady in July, the coincident index now stands at 120.2 (1990=100). Based on revised data, this index increased 0.2 percent in June and increased 0.3percent in May. During the six-month period through July, the coincident index increased 0.8 percent, with three of the four series making a positive contribution (diffusion index, six-month span equals 75.0 percent).
