The Conference Board reports that the leading index for Japan decreased 0.2 percent, while the coincident index increased 0.5 percent in October.



The leading index declined again in October, the fourth consecutive monthly decline for the index. Dwelling units started, business failures (inverted), new orders for machinery and construction orders, and the Tankan business conditions components all contributed to this month's decline. With October's decrease, the leading index decreased -1.8 percent from April to October (a -3.6 percent annual rate). This growth rate is well below the 5.0 percent annual rate reached in the first half of 2006. However, the strengths and weaknesses among the leading indicators have continued to be somewhat balanced over the past six months.

The coincident index increased in October, but it has been fluctuating around an essentially flat trend in the last six months. The strength in the coincident index has been somewhat widespread in recent months, and its six-month growth rate has remained within the 0.5 to 1.5 percent range (about a 1.5 - 2.5 percent annual rate) since early 2006. At the same time, real GDP growth picked up to a 2.6 percent annual rate in the third quarter of 2007, from the 0.5 percent average annual rate in the first half of the year. The developing weakness in the composite indexes so far suggests that the economy is likely to grow at a sluggish pace in the near term, and continued weakness in housing and industrial new orders may be a warning sign of slower economic growth going forward.

LEADING INDICATORS

Six of the ten components that make up the leading index increased in October. The positive contributors to the index - in order from the largest positive contributor to the smallest - include the six month growth rate of labor productivity, the index of overtime worked, interest rate spread, real money supply, real operating profits, and stock prices. The negative contributors - in order from the largest negative contributor to the smallest - include dwelling units started, the (inverted) business failures, the new orders for machinery and construction component, and the Tankan business conditions survey.

With the decrease of 0.2 percent in October, the leading index now stands at 85.4 (1990=100). Based on revised data, this index decreased 1.3 percent in September and decreased 0.7 percent in August. During the six-month span through October, the index decreased 1.8 percent, and six of the ten components advanced (diffusion index, six-month span equals 60.0 percent).

COINCIDENT INDICATORS

Three of the four components that make up the coincident index increased in October. The positive contributors to the index - in order from the largest positive contributor to the smallest - include industrial production, the retail, wholesale, and manufacturing sales component, and number of employed persons. Wage and salary income remained flat in October.

With the increase of 0.5 percent in October, the coincident index now stands at 108.9 (1990=100). Based on revised data, this index decreased 0.3 percent in September and increased 0.2 percent in August. During the six-month span through October, the index increased 0.5 percent, and three of the four components advanced (diffusion index, six-month span equals 75.0 percent).