Leading Report

Leading


The Leading Indicators report is, for the most part, a compendium of previously announced economic indicators: new orders, jobless claims, money supply, average workweek, building permits, and stock prices. Therefore, the report is extremely predictable and of very little interest to the market. Though this series does have some predictive qualities, it is a common criticism that it has predicted "nine of the last six" recessions.

The Commerce Department previously published the leading indicators series. The collection and publishing of these data is now done by the non-profit Conference Board, which also produces the Consumer Confidence index.


The index of leading indicators includes the ten economic statistics listed below.

1.The interest rate spread between 10-year Treasury notes and the federal funds rate.
2. The inflation-adjusted, M2 measure of the money supply.
3. The average manufacturing workweek.
4. Manufacturers' new orders for consumer goods and materials.
5. The S&P 500 measure of stock prices.
6. The vendor performance component of the NAPM index.
7. The average level of weekly initial claims for unemployment insurance.
8. Building permits.
9. The University of Michigan index of consumer expectations.
10.Manufacturers' new orders for nondefense capital goods.

The Conference Board, the organization that produces the leading index, standardizes these variables according to their individual weights in order to construct a composite leading index. Note that we have listed the components in order of importance. The difference between 10-year Treasuries and the fed funds rate carries the most weight; historically, this approximation of the slope of the yield curve has proven relatively more successful than other components at predicting future economic activity. Along those same lines, orders for nondefense capital goods carry the smallest weight because they have typically proven relatively poorer at pointing to changes in the direction of economic growth at large.