LEADING, COINCIDENT, AND LAGGING INDICATORS ROSE IN APRIL MAY MANUFACTURING ACTIVITY IS STILL FLAT

The Commerce Department and the Conference Board lived up to their promise of last month. Today all three of the composite indexes of economic activity were released at the same time.

The composite index of leading economic indicators (LEI) increased 0.3 percent in April to 102.1. The index bottomed at 100.2 in January, and since then rose 1.3 percent in February and 0.3 percent in March in addition April's 0.3 percent rise. This is the first time the index rose three consecutive months since January of 1994. The April 102.1 reading is the highest since February 1995. It seems that the LEI is telling us to look out for increased economic activity in the months to come.

Eleven different indicators are used to generate the LEI, and seven of these rose in April. Leading the way were manufacturers' new orders of consumer goods and materials, the change in sensitive materials prices, and average weekly initial claims for state unemployment insurance.

The composite index of coincident economic indicators (CEI) increased 0.3 percent in April to 119.9. The most recently available figures for three of the four component indicators--employees on nonagricultural payrolls, industrial production, and personal income less transfer payments--increased. In the past nine months the CEI rose six times, was unchanged twice, and declined only once. In the past year the index rose by 2.8 percent. No question about it, the CEI is telling us that we are in a period of slow, steady economic growth.

The composite index of lagging indicators increased 0.2 percent in April to 102.3. This is down from the recent high of 102.6 set in January; but, up from the near-term low of 102.1 set in February. The lagging index is not showing any particular evidence of weakness. So, (as if you didn't already know this) it looks like we are not in the middle of a recession.

The next release of the composite indexes is scheduled for July 2.

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In other news today, the National Association of Purchasing Management (NAPM) announced the results of its May member survey.

Each month the NAPM surveys a representative sampling of its members on the status of a variety of indicators related to business conditions at their firms. The NAPM survey results are important because they are released ahead of all the government reports and because they provide an overview of the national economy from the point of view of the private sector -- completely independent of the government.

Today, in the report on its May survey, the NAPM revealed that its widely-followed Purchasing Managers Index (PMI) had declined to 49.3%, from an April reading of 50.1%. The PMI is a composite of five different indicators measured by the survey (New Orders, Production, Supplier Deliveries, Inventories, and Employment). In theory, the PMI can vary anywhere between 0% and 100%. But, in practice, the Index has moved in a range between a high of 78% in 1950 and a low 30% in 1980. During the past 5 years it hit a low of 38% in 1991 and a high near 60% in October, 1994. Any reading less than 50% is indicative of weakness in the manufacturing sector. So, the May reading of 49.3% indicates a slight slowing in the manufacturing sector from April to May.

Looking at some of the sub-indexes measured by the survey, we find that the employment index dropped from 45.3 to 35.5 from April to May. In other words, the prospects for increasing the manufacturing workforce went from bad to worse.

Manufacturing output, as measured by NAPM's production index, rose from 52.1 to 52.7 from April to May, the first time since September of last year that this index increased two months in row.

The NAPM prices-paid index jumped surprisingly from 40.1 to 50.8. This level signifies that slightly more purchasing agents were paying more for raw materials than were not. I wouldn't expect that this index will change much further as long as the PMI stays essentially at a going-nowhere level.

Byline: Lafferty (MF Merlin)