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The latest results declared by the Conference Board for its Leading Economic Index for the U.S. provides an insight into the health of the US economy. The index declined 0.3% in March, following a 0.2% decrease in February, and a 0.2% decline in January. But, just what are the Conference Board and its Leading Economic Index?

The Conference Board, Inc is a nonprofit making business organization that conducts economic and business research and holds conferences. The Conference Board has devised an ‘Index of Leading Indicators’ based on ten key variables, which usually dip before a recession and move upward before an expansion. Since historically, these have displayed downward and upward trend before phases of recession and expansion, they have gained the reputation of being reliable indicators. The index has thus been used as an early warning system and to give directions to macroeconomic policy making.

The ten variables and their current status:





Real money supply



Interest rate spread



Index of consumer expectations



Building permits



Stock prices



Index of supplier deliveries



Average weekly manufacturing hours



Average weekly initial claims for unemployment insurance



Manufacturers’ new orders for non defense capital goods



Manufacturers’ new orders for consumer goods and materials

No change

The Conference Board’s index composed of the above mentioned variables provides a general direction of the economy in the next three to six months. The 0.3% fall in the index for March, suggests that the US economy may be headed for a longer recessionary period than previously expected.
Though, the index suggests some improvement in consumer expectations, rising unemployment indicated by unemployment claims is likely to wipe out any gains in that direction. Building permits was a huge negative in the index and stocks fell in the period on concerns raised by a Bank of America report that Americans will remain behind schedule on loan repayments for some time to come.
The positive parameters in the index included an increase in the money supply, improved consumer expectations and a widened spread between 10 year and overnight rates. But, again, one must bear in mind that the Fed’s action of buying securities and injecting cash into the economy could turn inflationary, once the economy starts to recover. This could erode some of the gains that the economy makes in the future.
Though the index has fallen, there seems to some unanimity amongst forecasters that the intensity of the recession may begin to ease, suggestive of the fact that an inflection point may have been reached for the recession that began late 2007.

The not so good news suggested by the Conference Board’s index, and the expected turmoil in the banking sector, led investors to rush to the safety of the US dollar, spiking it up. Risk aversion also made the Yen attractive once again, which moved up against major currencies.

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