The coincident index declined in December, following two consecutive monthly increases. Industrial production made a large positive contribution to the index this month, but this was more than offset by the large decline in wage and salary income. The six-month growth rate of the coincident index slowed to 0.3 percent from June to December (a 0.6 percent annual rate), below the 0.5 to 1.2 percent growth rate (a 1.0 to 2.4 percent annual rate) in recent months, but the strengths among the components remained fairly widespread over the past six months.
The leading index has been volatile since mid-2006 and it began to weaken in December 2006. This weakness has become gradually more widespread among the leading indicators. The last time the leading index fell by more than a 7.0 percent annual rate over the previous six months was in January 2002. Meanwhile, real GDP growth slowed to an average annual rate of 1.0 percent through the third quarter in 2007, including a -1.8 percent annual rate in the second quarter and 1.5 percent in the third quarter. Taken together, the current behavior of the composite indexes highlights increasing risks for further economic weakness, and suggests that economic activity is likely to be sluggish in the near term.
LEADING INDICATORS. Four of the ten components that make up the leading index increased in December. The positive contributors to the index — in order from the largest positive contributor to the smallest — include dwelling units started, the (inverted) business failures, interest rate spread, and the six month growth rate of labor productivity. The negative contributors — in order from the largest negative contributor to the smallest — include the new orders for machinery and construction component, stock prices, the index of overtime worked, the Tankan business conditions survey, real money supply and real operating profits.
With the decrease of 0.4 percent in December, the leading index now stands at 84.8 (1990=100). Based on revised data, this index remained unchanged in November and decreased 0.2 percent in October. During the six-month span through December, the index decreased 3.6 percent, and three of the ten components advanced (diffusion index, six-month span equals 30.0 percent).
COINCIDENT INDICATORS. One of the four components that make up the coincident index decreased in December. The positive contributor to the index was industrial production. Wage and salary income, number of employed persons, and the retail, wholesale, and manufacturing sales component declined in December.
With the decrease of 0.1 percent in December, the coincident index now stands at 109.0 (1990=100). Based on revised data, this index increased 0.2 percent in November and 0.5 percent in October. During the six-month span through December, the index increased 0.3 percent, and three of the four components advanced (diffusion index, six-month span equals 75.0 percent).
