Leading Indicators Show Recession ‘Bottoming Out’


September 23, 2009

The U.S. recession is bottoming out and a recovery is near, economists for the Conference Board said recently after reporting that the index of leading economic indicators rose 0.6% in August 2009, the fifth straight increase. 

The coincident index—designed to measure current activity—was flat in August after an upwardly revised 0.1% gain in July, the private research organization said. The increase in July was the first since September 2008 and just the second since the recession began in December 2007. Five of the 10 leading indicators improved in August, and two others were unchanged. The leading indicators are designed to forecast economic activity about six to nine months ahead. “These data add further evidence to the growing view (and our long-held belief) that the official end date of the recession is likely to be sometime in the third quarter,” wrote Michelle Girard, an economist for RBS Securities. 

The positive contributions came from slower supplier deliveries, the interest-rate spread, higher stock prices, more building permits and better consumer expectations. The negative contributions to the index came from the real money supply, jobless claims and capital-goods orders. The factory workweek and consumer-goods orders were unchanged in August. The leading indicators rose an upwardly revised 0.9% in July vs. 0.6% previously reported. “These numbers are consistent with the view that, after a very severe downturn, a recovery is very near,” said Ken Goldstein, economist for the organization. “But the intensity and pattern of that recovery is more uncertain.” 

The leading indicators had fallen for 20 consecutive months before turning higher in April. “Its gains have become very widespread,” said Ataman Ozyildirim, an economist for the Conference Board. Over the last six months, the leading index has risen 4.4% after falling 2.4% in the previous six months. Eight of the 10 indicators have improved over the past six months. The coincident index has fallen 2% in the past six months, with none of the four indicators showing improvement. Three of the four coincident indicators improved in August—industrial production, personal incomes and business sales. The fourth coincident indicator—nonfarm payrolls—fell. Personal incomes and sales were estimated by the Conference Board. 

The four coincident indicators are the same ones used by the National Bureau of Economic Research (NEBR) to judge whether the economy is growing or contracting. The NBER is not expected to make a ruling about the end of the recession for several months. 

“For six out of the past seven recessions, the coincident index has bottomed the same month as the U.S. economy,” wrote Sam Bullard, an economist with Wells Fargo Securities. “The recent improvement is further evidence that the recession may have ended at the close of the second quarter.”