Leading Indicators Revised

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Leading Economic Indicators

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Leading Economic Indicators

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GDP v GDI

Fed economist Jeremy Nalewaik examined the differences in GDP and a closely-related measure, gross domestic income. GDP measures the output of the economy as the sum of expenditures — consumption, plus investment plus government spending plus net exports. GDI measures total income in the economy.

In theory, the two measures should equal one another, in practice they don’t quite, and Mr. Nalewaik argues that GDI is the better of the two.

He finds that when the Commerce Department’s Bureau of Economic Analysis revises its national income and product accounts, GDP figures move more closely inline with GDI. GDI also appears to have a stronger correlation with other economic indicators, and its recent movement around turning points suggests it more closely tracks the economy.

He notes that GDI fell far more sharply in the teeth of the recession, dropping at a 7.3% annual rate in the fourth quarter of 2008, and 7.7% in the first quarter of 2009. GDP, in comparison, fell by 5.4% and 6.4%. Moreover, while GDP showed the economy began to grow in last year’s third quarter, GDI showed it continued to contract. (Fourth-quarter GDI figures aren’t yet available.)

read the WSJ article or read Nalewiek's paper

Is the Recession Over?

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Cartoon: Leading Economic Indicators

ISM Report

43.5


The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession.

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2008: Slow Growth, No Recession

Also Thursday, the Conference Board reported that its composite index of leading indicators, which is intended to show the economy's future direction, fell to 135.8 in January after an upwardly revised 0.1% drop in December. The reading matched the 0.1% median decrease estimate of 17 economists surveyed by Dow Jones Newswires Monday.

With January's decline, the leading index has fallen 2% -- a decline of a 4% annual rate -- from July 2007 to January 2008, the largest six-month decline in the index since early 2001, the private research group said. In addition, weakness among the index components have been more widespread than the strengths in recent months.

In January, stock prices made the largest negative contribution to the index, and housing permits also made a large negative contribution. Smaller negatives came from manufacturers' new orders for nondefense capital goods and interest rate spread. Positive contributors were real money supply, average weekly jobless claims, consumer expectations and vendor performance...

Looking at the figures, Ken Goldstein, labor economist at the Conference Board, said that while the leading index declined, the coincident index, which measures where the economy is at present "remains slow but steady."

The coincident index "is a better indicator than [gross domestic product] of where we are right now," Mr. Goldstein said, "and since [that index] was still showing a positive change in January, then the economy was not in recession." However, he said, "the change in the leading index, including the duration, intensity and dispersion across markets, suggests weak growth going forward."

read the WSJ story

Despite the continued fear, it appears the economy will avoid a recession in 2008.

ISM Report Fueling Recession Fears

In the U.S., a key barometer of the strength of the service sector dropped to its lowest level since October 2001, and suggested those businesses are now contracting. In Europe, a similar indicator fell to a four-year low.

The readings fanned fears on Wall Street that the U.S. is about to tip into recession, if it hasn't already done so, particularly startling analysts who had viewed services as the nation's last bastion of economic growth.

Yesterday, the Institute for Supply Management said its index of nonmanufacturing business activity, which is based on a survey of purchasing managers in service industries, fell to 41.9 in January from 54.4 in December. That was the sharpest decline in the survey's 10-year history. (A reading below 50 indicates the industries are shrinking.)

read the WSJ article