The index of leading economic indicators is used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. The ten components are:

1. the average weekly hours worked by manufacturing workers
2. the average number of initial applications for unemployment insurance
3. the amount of manufacturers’ new orders for consumer goods and materials
4. the speed of delivery of new merchandise to vendors from suppliers
5. the amount of new orders for capital goods unrelated to defense
6. the amount of new building permits for residential buildings
7. the S&P 500 stock index
8. the inflation-adjusted monetary supply (M2)
9. the spread between long and short interest rates
10. consumer sentiment

The Conference Board reported a gain in the index in September, the first gain in 5 months. The US leading indicators index rose 0.3%, matching estimates by various economists. The index is down 1.3% (-2.5% annual pace) in the last six months, much better than the -1.7% witnessed in the 6 months prior.

Six of the components were positive for the month.

Real money supply, consumer expectations, the interest rate spread, and the index of supplier deliveries all made large positive contributions to the index in September, more than offsetting the negative contributions from building permits, stock prices, initial claims for unemployment insurance (inverted) and the average workweek in manufacturing.

The biggest positive contributor was real money supply. This is logical and expected as the Fed has vigorously and continuously pumped large amounts of money into our financial markets, in an attempt to quell the credit crunch and restart our economy.

The Conference Board’s coincident index fell 0.5% in September, while the lagging index dropped 0.2%.

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