The Conference Board reported an expansion in the index of leading economic indicators in December, mainly due to the continued and very large positive contribution from real money supply. The US leading indicators index increased 0.3% for the month, after a 0.4% drop in November and a 1.0% decline in October. Economists were expecting a reading of -0.3%. The index is down 2.5% (-5.0% annual pace) in the last six months.
The economy is contracting, and the pace of contraction may intensify over the next few months. The economy was very weak.- Ken Goldstein, an economist for the Conference Board.
Expect declines in output and employment over the next several quarters, with unemployment possibly rising to 9%.
The index 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
Four of the components were positive for the month.
The positive contributors — beginning with the largest positive contributor — were real money supply*, interest rate spread, manufacturers’ new orders for consumer goods and materials* and manufacturers’ new orders for nondefense capital goods*.
The negative contributors — beginning with the largest negative contributor — were building permits, average weekly manufacturing hours, index of supplier deliveries (vendor performance), average weekly initial claims for unemployment insurance (inverted), and stock prices. The index of consumer expectations held steady in December.
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 decreased 0.5% in December, while the lagging index decreased 0.4%.