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By New_Deal_democrat December 9, 2014 1:30 pm
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A look at the short leading indicators

I frequently refer to the long leading indicators, i.e., those series which typically turn 12 or more months before the main economy does. In addition to those, however, the pioneering Prof. Geoffrey Moore also listed a series of 11 short leading indicators. These are more variable but typically turn about 3 to 6 months before the economy as a whole. Moore identified them as: 

S&P 500 stock price index 

  • Average workweek in manufacturing 
  • Layoff rate under 5 weeks 
  • Initial claims for unemployment insurance 
  • ISM manufacturing vendor performance 
  • ISM manufacturing inventory change 
  • Journal of Commerce change in commodity prices 
  • Change in deflated nonfinancial debt 
  • New orders for consumer goods and materials 
  • Dun and Bradstreet change in business population 
  • Contracts and orders for plant and equipment 

If this list looks familiar, it is because most of its components made it into the 1990's remake of the LEI, which was subsequently turned over the the Conference Board for calculating and publishing, and over half of the components (or similar components) still are contained in the Conference Board's Index. Where they differ is primarily that the Conference Board's LEI is a mix of longer (e.g., building permits) and shorter (e.g., initial jobless claims) indicators, whereas Moore advocated monitoring the Long Leading Index, and then looking for confirmation of a turn in the short leading index. 

So let's look at the components of Moore's Short Leading Indicators in order, minus the few (Dun and Broadstreet) for which the data is not public.

S&P 500:

Average workweek in manufacturing:


Unemployment of under 5 weeks duration (red) and the 4 week average of initial jobless claims (blue):

ISM manufacturing vendor performance, and inventory change:

The Conference Board recently substituted the ISM new orders index for these, so let's look at that as well:

New factory orders (red) and core capital goods orders (blue):

New consumer goods orders:

Finally, because Prof. Edward Leamer has identified vehicle purchases as the primary consumer good that turns down several quarters out from a recession, let's look at vehicle sales:

Note, by the way, that vehicle sales tend to plateau for lengthy periods during expansions before turning down.

Finally, here are commodity prices (which, of course, include oil):

My take on commodities is that they describe a slowing global economy, but they act as stimulus for a largely consumption based economy like the US. In contrast, when we omit Oil and check an industrial commodity index:

we see it was declining for over three years, before cottoming eariler in 2014. It has risen somewhat since then.

In summary, with the exception of commodities and also  the noisy short duration unemployment reading, all of the short leading indicators that tell us what the next 3 to 6 months are likely to look like, are either slightly positive (ISM inventories and durable goods) or fully positive.

Replies: A look at the short leading indicators

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    StuartLevine's picture
    StuartLevine Posts: 1

    At least one of the charts ("Unemployment of under 5 weeks duration (red) and the 4 week average of initial jobless claims (blue)") appears to be missing. The charts for (i) New factory orders and core capital goods orders, (ii) vehicle sales and (iii) commodity prices also appear to be missing.

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