The leading index increased sharply in August, driven largely by new orders in investment goods and the inverted six-month growth rate of CPI services. Despite the increase in August, the leading index has slowed to about a 0.2 percent annual rate in recent months, down from the 5.0 — 6.0 percent rate in the first quarter of 2006. In addition, the strengths among the leading indicators have become less widespread in recent months.
The coincident index increased again in August, and has been on a steady upward trend in recent months. At the same time, real GDP grew at a 3.2 percent average annual rate in the first half of 2006, up from the 1.6 percent rate over the previous two quarters. The slower growth in the leading index in recent months suggests that the economy is likely to continue at a moderate rate in the near term.
LEADING INDICATORS.
Five of the eight components in the leading index increased in August. The positive contributors to the leading index — in order from the largest positive contributor to the smallest — are new orders in investment goods industries, the growth rate of CPI for services, stock prices, new residential construction orders, and inventory change series*. Negative contributors — in order from largest to smallest — are yield spread, consumer confidence, and gross enterprises and properties income*.
With the 0.5 percent increase in August, the leading index now stands at 106.9 (1990=100). Based on revised data, this index remained unchanged in July and declined 0.2 percent in June. During the six-month span through August, the leading index increased 0.1 percent, with two of the eight components increasing (diffusion index, six-month span equals 31.3 percent).
COINCIDENT INDICATORS.
Two of the four components that make up the coincident index increased in August. The positive contributors to the coincident index were industrial production and employed persons. Manufacturing sales declined and retail trade remained unchanged in August.
With the 0.2 percent increase in August, the coincident index now stands at 106.6 (1990=100). Based on revised data, this index increased 0.3 percent in July and increased 0.3 percent in June. During the six-month period through August, the coincident index increased 1.1 percent, with all four components increasing (diffusion index, six-month span equals 100.0 percent).
