The Conference Board announced today that the U.S. leading index decreased 0.2 percent, the coincident index increased 0.1 percent and the lagging index increased 0.3 percent in August.

1. ? The leading index decreased again in August. From February to August, the leading index fell by 0.6 percent (a -1.2 percent annual rate). The leading index has declined in 5 of the last 8 months. Weaknesses and strengths among the leading indicators have been fairly balanced in recent months, resulting in a trend that is more flat than declining. Weakening housing permits and consumer expectations made the largest negative contributions to the leading index from February to August, offsetting significant positive contributions from average weekly hours in manufacturing and vendor performance.
2. ? The coincident index rose slightly in August. This measure of current economic activity has been increasing consistently since September 2005, although the pace moderated slightly in recent months. From February to August, the coincident index grew 1.1 percent (a 2.1 percent annual rate), and the strengths (especially in employment and production) continued to be more widespread than weaknesses in recent months.
3. ? The leading index has fallen below its most recent high reached in January, but it was still 0.4 percent above its year ago level in August. At the same time, real GDP growth slowed to a 2.5 percent (annual) rate in the second quarter, following a 5.6 percent gain in the first quarter. The behavior of the leading index so far suggests that economic growth should continue at a slow but steady pace in the near term.

LEADING INDICATORS. Three of the ten indicators that make up the leading index increased in August. The positive contributors ? beginning with the largest positive contributor ? were stock prices, real money supply*, and manufacturers? new orders for consumer goods and materials*. The negative contributors ? beginning with the largest negative contributor ? were index of consumer expectations, building permits, average weekly manufacturing hours, interest rate spread, average weekly initial claims for unemployment insurance (inverted), vendor performance, and manufacturers? new orders for nondefense capital goods*.

The leading index now stands at 137.6 (1996=100). Based on revised data, this index decreased 0.2 percent in July and increased 0.1 percent in June. During the six-month span through August, the leading index decreased 0.6 percent, with five out of ten components advancing (diffusion index, six-month span equals fifty percent).

COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in August. The positive contributors to the index ? beginning with the largest positive contributor ? were employees on nonagricultural payrolls, personal income less transfer payments*, and manufacturing and trade sales*. The negative contributor was industrial production.

The next release is scheduled for October 19, Thursday at 10 A.M. ET.

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The coincident index now stands at 123.3 (1996=100). This index increased 0.2 percent in July and increased 0.2 percent in June. During the six-month period through August, the coincident index increased 1.1 percent.

LAGGING INDICATORS. The lagging index stands at 124.2 (1996=100) in August, with four of the seven components advancing. The positive contributors to the index ? beginning with the largest positive contributor ? were commercial and industrial loans outstanding*, change in CPI for services, ratio of manufacturing and trade inventories to sales*, and ratio of consumer installment credit outstanding to personal income*. The negative contributors ? beginning with the largest negative contributor ? were change in labor cost per unit of output* and average duration of unemployment (inverted). The average prime rate charged by banks* held steady in August. Based on revised data, the lagging index decreased 0.2 percent in July and increased 0.6 percent in June.

The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available "as of" 12 Noon on September 20, 2006. Some series are estimated as noted below.

* Series in the leading index that are based on The Conference Board estimates are manufacturers? new orders for consumer goods and materials, manufacturers? new orders for nondefense capital goods, and the personal consumption expenditure used to deflate the money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.

The procedure used to estimate the current month?s personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month?s consumer price index when it is available before the release of the U.S. Leading Economic Indicators.

Effective with the September 18, 2003 release, the method for calculating manufacturers? new orders for consumer goods and materials (A0M008) and manufacturers? new orders for nondefense capital goods (A0M027) has been revised. Both series are now constructed by deflating nominal aggregate new orders data instead of aggregating deflated industry level new orders data. Both the new and the old methods utilize appropriate producer price indices. This simplification remedies several issues raised by the recent conversion of industry data to the North American Classification System (NAICS), as well as several other issues, e.g. the treatment of semiconductor orders. While this simplification caused a slight shift in the levels of both new orders series, the growth rates were essentially the same. As a result, this simplification had no significant effect on the leading index.

Effective with the January 22, 2004 release a programming error in the calculation of the leading index -- in place since January 2002 -- has been corrected. The cyclical behavior of the leading index was not affected by either the calculation error or its correction, but the level of the index in the 1959-1996 period is slightly higher.

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Ken Goldstein: 212-339-0331 Randy Poe: 212-339-0234

Indicators Program: 212-339-0330 Frank Tortorici: 212-339-0231

Email: indicators@conference-board.org

Website: www.conference-board.org/economics/bci

THE CYCLICAL INDICATOR APPROACH. The composite indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging indexes are essentially composite averages of between four and ten individual leading, coincident, or lagging indicators. (See page 3 for details.) They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component?primarily because they smooth out some of the volatility of individual components.

Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, while the cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity. The cyclical turning points in the lagging index generally have occurred after those in aggregate economic activity.

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Leading Index Factor

Notes:

The component factors are inversely related to the standard deviation of the month-to-month changes in each component. They are used to equalize the volatility of the contribution from each component and are "normalized" to sum to 1. When one or more components are missing, the other factors are adjusted proportionately to ensure that the total continues to sum to 1.

These factors were revised effective on the release for January 2006, and all historical values for the three composite indexes were revised at this time to reflect the changes. (Under normal circumstances, updates to the leading, coincident, and lagging indexes only incorporate revisions to data over the past six months.) The factors for the leading index were calculated using 1984-2004 as the sample period for measuring volatility. A separate set of factors for the 1959-1983 period is available upon request. The primary sample period for the coincident and lagging indexes was 1959-2004. For additional information on the standardization factors and the index methodology see: "Benchmark Revisions in the Composite Indexes," Business Cycle Indicators December 1997 and "Technical Appendix: Calculating the Composite Indexes" Business Cycle Indicators December 1996, or the Web site: www.conference-board.org/economics/bci.

The trend adjustment factor for the leading index is -0.0164, and the trend adjustment factor for the lagging index is 0.1744.

To address the problem of lags in available data, those leading, coincident and lagging indicators that are not available at the time of publication are estimated using statistical imputation. An autoregressive model is used to estimate each unavailable component. The resulting indexes are therefore constructed using real and estimated data, and will be revised as the unavailable data during the time of publication become available. Such revisions are part of the monthly data revisions, now a regular part of the U.S. Business Cycle Indicators program. The main advantage of this procedure is to utilize in the leading index data such as stock prices, interest rate spread, and manufacturing hours that are available sooner than other data on real aspects of the economy such as manufacturers? new orders. Empirical research by The Conference Board suggests that there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.

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ABOUT THE CONFERENCE BOARD. The Conference Board is the premier business membership and research network founded in 1916. It has become a global leader in helping executives build strong professional relationships, expand their business knowledge and find solutions to a wide range of business challenges. Its Economics Program, under the direction of Chief Economist Gail Fosler, is a recognized source of forecasts, analysis and objective indicators such as Leading Economic Indicators and Consumer Confidence.

This role is part of a long tradition of research and education that stretches back to the compilation of the first continuous measure of the cost of living in the United States in 1919. In 1995, The Conference Board assumed responsibility for computing the composite indexes from the U.S. Department of Commerce. The Conference Board now produces business cycle indexes for the U.S., Australia, France, Germany, Korea, Japan, Mexico, Spain and the U.K. To subscribe to any of these indexes, please visit www.conference-board.org/economics/bci or contact the customer service department at 212-339-0345 or email indicators@conference-board.org.

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THESE DATA ARE FOR NEWS ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION.

THESE DATA ARE FOR NEWS ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION.

THESE DATA ARE FOR NEWS ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION.

THESE DATA ARE FOR NEWS ANALYSIS PURPOSES ONLY. NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION.