Nine of AIER's 12 primary leading indicators increased in the latest batch of data, causing the cyclical status of seven to be reappraised. As a result, the percentage of leaders with a discernable trend that are expanding jumped to 67 (six out of nine) this month, from 40 (four out of ten) last month.

Increases in new orders for capital goods and in new housing permits coupled with a continuing increase in the index of common stock prices might be precursors for an increase in investment. Similarly, an increasing average workweek in manufacturing and falling initial claims for state unemployment insurance indicate that the deterioration in the labor market is slowing.

These changes, although encouraging, have not yet translated into improvements in the broader economy. Employment is still falling, although more slowly than it did before. Sales and personal income  also continue to decline as consumers rein in their spending and reduce debt. It is, therefore, premature to assert that the recession has come to an end.

The percentage of leaders expanding now stands above 50, which normally would suggest that the recession may be nearing its end. We are cautious to assert so, however, because a related measure, the cyclical score, remains below 50.

The procedure for calculating the percentage of leaders expanding does not allow for any shades of gray. Each series is given a specific cyclical status each month, and a series reaching a new high for the cycle has the same weight as one that has decreased for several months and is on the verge of an indeterminate status. Moreover, the series appraised as indeterminate are excluded from the calculation.

In contrast, the cyclical score, which is based on a purely arithmetic calculation, takes into account both the duration and magnitudes of the increases in each of the 12 series. By doing so it allows for something other than an all-or-nothing contribution of a given series to the final result.

The cyclical score increased to 46 this month from 43 last month. Once both the percentage of leaders expanding and the cyclical score increase above 50, we will be more confident in asserting that the recovery is imminent.

We upgraded the cyclical status of two of the primary roughly coincident indicators—index of industrial production and personal income less transfer payments—but these series did not increase enough to be appraised as expanding. Consequently, none of the primary roughly coincident indicators are appraised as expanding, indicating that the economy is still in a recession.

Read a general description of our indicators and methods of analysis.

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