The Conference Board reports today that the leading index for Japan decreased 0.3 percent and the coincident index decreased 0.2 percent in January.



The leading index fell in January following three consecutive gains from October to December. The business failures (inverted), stock prices, and dwelling units started components were the main contributors to this month's decline. Despite January's decrease, the leading index grew 0.8 percent (1.6 percent annual rate) from July to January, and its growth has been fluctuating around a 1.0 to 1.5 percent annual rate in the last six months. However, this growth is still well below the range of 4.5 to 5.5 percent (annual rate) in the first half of 2006. The strengths and weaknesses among the leading indicators have continued to be balanced in the last several months.

The coincident index also fell slightly in January, and the fall in the number of employed persons as well as in industrial production were the main contributors to the decline. Despite the small decline in January, the coincident index is still on the steady upward trend that began in early 2005. At the same time, real GDP grew at a 2.6 percent average annual rate in the second half of 2006 (including a 4.8 percent rate in the fourth quarter), slightly up from the 2.1 percent average annual rate in the first half of the year. The current behavior of the leading index suggests that moderate economic growth is likely to continue in the near term.

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

With the decrease of 0.3 percent in January, the leading index now stands at 88.8 (1990=100). Based on revised data, this index increased 0.8 percent in December and increased 0.2 percent in November. During the six-month span through January, the index increased 0.8 percent, and five of the ten components advanced (diffusion index, six-month span equals 50.0 percent).

COINCIDENT INDICATORS. Two of the four components that make up the coincident index increased in January. The positive contributors to the index — in order from the larger positive contributor to the smaller — include the retail, wholesale, and manufacturing sales* component and wage and salary income*. Industrial production and number of employed persons declined in January.

With the decrease of 0.2 percent in January, the coincident index now stands at 107.9 (1990=100). Based on revised data, this index increased 0.1 percent in December and increased 0.3 percent in November. During the six-month span through January, the index increased 1.1 percent, and three of the four components advanced (diffusion index, six-month span equals 87.5 percent).