Rather than personal opinion of which economic indicators provide the best read on the economy, I'll use the leading and coincident indicators which the Conference Board has tested as the best.
The index of leading indicators is made up of ten indicators which provide a forward read on the economy. By rank of their weighting in the index they include real money supply, manufacturing hours, the spread between 10-year Treasury note yields and the policy rate, manufacturing's consumer goods orders, the deliveries index from the ISM manufacturing index, stock prices, initial unemployment claims, consumer expectations, building permits and non-defense capital goods orders.
The leaders index identified the start of recession in December 2007 as it declined for a third consecutive month and the 6 month growth was below -1%. The March 2009 index released Monday also showed a third consecutive month of decline (without a rise in nine months) as the 6 month average reached a low -2.5%. The index provides warning of recession, but no read on its exit from economic contraction.
The Conference Board's coincident index is made up of just 4 indicators, the same four the National Bureau of Economic Research uses to determine the timing of a recession. This is a better index to watch currently as it better tells when the key recession indicators have turned toward growth. The four components are (again by order of their weighting in the index) payroll employment (with over half the weight), real personal income less transfers, industrial production and real business sales.
Both real income and sales showed gains in March as declines in employment and industrial production provided the -0.4% decline -- the smallest in the last five months. The recovery waits for payrolls and industrial production to turn upward providing the other two remain in neutral or positive. I suspect that employment may continue to decline early in the recovery, which leaves only industrial production to turn direction and bring economic growth. Well, at least according to these indicators.
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