Real GDP grows at 2.2% in H1

19 Oct '07

4 min read

The Conference Board announced that the U.S. leading index increased 0.3 percent, the coincident index increased 0.2 percent and the lagging index increased 0.5 percent in September.

• The leading index increased in September, the third increase in the last six months, and these increases and decreases have been alternating and offsetting each other. As a result, the leading index is now at the same level as in March 2007.

In September, building permits made the largest negative contribution which was offset by large positive contributions from vendor performance, stock prices, and unemployment insurance claims (inverted).

In the period from March to September, gains in real money supply and stock prices have offset the weakness from the housing permits and interest rate spread components.

• The coincident index increased again in September, and it grew 1.0 percent from March to September (a 1.9 percent annual rate), below its long-term average growth rate (about a 2.6 percent annual rate measured over 1959-2007), and down from the 2.5 percent average annual rate in 2006.

Despite slower growth, the strengths among the coincident indicators continued to be very widespread in recent months. At the same time, the lagging index continued to increase.

The gains in the lagging index have been larger than those in the coincident index recently, and as a result, the ratio of the coincident to lagging indexes decreased in four of the last six months.(This ratio tends to have long leads in the business cycle).

• The leading index has been essentially flat throughout 2007, and the six-month diffusion index suggests that the strengths among the leading indicators continue to be only slightly more widespread than weaknesses in recent months.

At the same time, real GDP grew at a 2.2 percent average annual rate in the first half of the year, only slightly up from the 1.6 percent average rate in the second half of 2006. The current behavior of the composite indexes suggests that slow economic growth is likely to continue in the near term.

LEADING INDICATORS Seven of the ten indicators that make up the leading index increased in September. The positive contributors – beginning with the largest positive contributor –were vendor performance, average weekly initial claims for unemployment insurance (inverted), stock prices, manufacturers' new orders for nondefense capital goods, real money supply, manufacturers' new orders for consumer goods and materials and index of consumer expectations.

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