Most of the AIER primary leading indicators posted an increase in the latest data. Continued growth in many of the series prompted us to upgrade the cyclical status of six out of the 12 leaders: the index of manufacturers' prices, new orders for core capital goods, new housing permits, the index of common stock prices, average workweek in manufacturing, and initial claims for state unemployment insurance. New life in these series suggest that there may be some improvements in manufacturing and that the downward spiral in the labor market may be coming to an end.

The percentage of leaders expanding rose from 30 last month to 40 (four out of ten series with a discernible trend) this month. The cyclical score of leaders, which is based on a separate purely mathematical analysis, rose from 38 last month to 43. A value below 50 for each of these measures indicates that a contraction is more likely than a recovery. The assertion of an imminent recovery is not warranted.

The cyclical status of new housing permits was upgraded this month to probably contracting, after staying at clearly contracting for 26 months. Recent increases in the number of new housing permits, coupled with optimistic data on new and existing home sales brought hopes of a revival in the housing market. But it is too soon to tell whether recent developments represent a change in the long-term downward trend.

None of the primary roughly coincident indicators are appraised as expanding. Among the primary lagging indicators, the only series not appraised as contracting – change in labor cost per unit of output in manufacturing – has been downgraded from clearly expanding to probably expanding. New data released this month show that the unit labor costs decreased for three months from April to June. This is the first decrease in the series since the start of the recession in December 2007. It indicates that businesses are finally bringing labor costs in line with the production levels, setting the stage for the eventual recovery.

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