The Conference Board's leading economic indicators are offering positive signs about the economy's future. They've risen for five months straight - a sign not only that the recession has likely ended, but also that we'll probably see growth continue into next year.
Good news, right? Not so fast.
Some argue that the dramatic steps the government has taken to address the recession have skewed the indicators' ability to tell how much the economy is hurting. Also, the indicators don't tell us when we'll see the key indicator of health for most Americans: new jobs.
So how should we interpret these numbers? Some questions and answers:
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Who comes up with these leading indicators?
They come from the Conference Board, a private research group founded in 1916 that produces a variety of economic statistics, including the Consumer Confidence Index. It first independently published the leading indicators index in January 1996, taking over from the Department of Commerce.
What do the indicators tell us?
The leading economic indicators are a forecast based on 10 factors, seven coming from previously released data and three being estimated by the Conference Board itself. The combined index is meant to tell us when a downturn or recovery is coming. (The "leading" in the name means that these indicators are aimed at forecasting the future.)
It's made up of:
- Average stock prices from the Standard & Poor's 500 index
- Employment data (average weekly manufacturing hours and average weekly initial claims for jobless aid)
- Building permits, which signal demand for homes
- Estimates of manufacturers' new orders for consumer goods and materials and nondefense capital goods
- Deliveries by suppliers to businesses
- Consumer expectations
- Interest rate spread (the difference between yields on 10-year Treasury notes and the federal funds rate, set by the Federal Reserve, which banks charge each other for short-term loans; a big difference between the two is seen as positive because it implies investors are willing to lend for longer periods)
- An estimate of the money supply
These measures are signals of future economic activity, and combining them is meant to smooth out volatility in the individual components from month to month.
The indicators are designed to show what's going on with the economy in the next three to six months. That means that at the tail end of a recession, they tend to turn positive before the stuff we associate with a vibrant economy starts actually happening.
So the recession's over. Sounds great. Why are some economists still worried?
In the past, the indicators have done a "great job" of signaling upturns and downturns, said Jennifer Lee, economist at BMO Capital Markets - but perhaps not this time.
"I can't really say with great force or great confidence whether or not we will have solid growth in the next year," Lee said.
That's because the government has been so involved in this recovery. It has bailed out the financial and auto sectors, pumped money into the economy, helped Americans buy a first home and kept interest rates near zero. The question that the indicators don't answer, Lee said, is "whether or not the economy can keep itself going without the assistance from the government."