South-Western College Publishing - Economics  
Economy Appears to Slip
Subject Index of Leading Economic Indicators
Topic Productivity and Growth
Key Words

Economic Growth and Index of Economic Indicators

News Story

The Conference Board's index of leading economic indicators is a widely watched measure of future U.S. economic activity. The October report showed economic activity had edged lower in September for the fourth consecutive month. The index fell 0.1 percent in September, after declining 0.3 percent in August, 0.3 percent in July and 0.1 percent in June. The rule of thumb is that three successive monthly declines indicate that the economy will follow on a downward trajectory.

Conference Board economist Ken Goldstein called the September decline a "clear signal that the economy is losing momentum heading into 2005." The index is valuable to analysts because it is structured to forecast the health of the economy over the three to six months following its publication.

The Board indicated that, while the weakness in the economy had become more widespread over the last several months, the indications are not yet large enough to suggest that the current economic recovery is ending. The decline in the index was actually slightly smaller than some analysts had expected.

Mr. Goldstein reported that the annual pace of nearly 4 percent growth in the current quarter was likely to decline in the final quarter of 2004. He cited rising energy prices and the September hurricanes that wreaked havoc upon the Southeastern U.S. as possible reasons for slower growth in some industries, such as home building.

Josh Feinman, chief economist at Deutsche Asset Management Americas, called the decline in the index of leading indicators consistent with other recent signs of a slight decline in economic activity, but warned that the signs were still mixed. As an example, Feinman cited a report from the Labor Department that showed a slight decline in the total number of people receiving unemployment benefits. He read this as an indication that the labor market has been "plodding toward improvement." Even though the index of leading indicators appear to suggest a slowing, some areas of the economy-like unemployment numbers--seem to be improving, making future predictions tenuous at best.

(Updated December, 2004)

Questions
1.

Visit the website of the Conference Board and record their list of leading economic indicators.

2. Over what time period is the index intended to predict economic activity?
3. How many months of decline or increase are required before the economy is expected to move in the same direction as the index? What magnitude of change in the index would be considered substantial enough to actually predict economic conditions in the future?
Source The Associated Press, "Economic Index Slips Again, for a 4th Consecutive Month," New York Times Online, October 22, 2004.

Return to the Productivity and Growth Index

©1998-2004  South-Western.  All Rights Reserved   webmaster  |  DISCLAIMER