The CEI for the U.K. rose slightly in December, its first increase since May, helped by a large increase in retail sales. Industrial production fell again this month, and it has not risen for more than a year now. The six-month change in the CEI has fallen to -0.2 percent (a -0.4 percent annual rate) during the second half of 2008, down from 0.3 percent (a 0.6 percent annual rate) in the first half of 2008, while the weaknesses and strengths among its components have been balanced over the past six months. In addition, real GDP declined at a 5.9 percent annual rate in the fourth quarter of 2008, following a contraction of 2.5 percent (annual rate) in the third quarter. The 4.2 percent average annual rate of decline during the second half of 2008 represents the lowest two-quarter growth rate since the second and third quarters of 1980.
The LEI has been falling for a year and a half now, amid widespread weakness among its components and is now 9.9 percent below its most recent peak level in June 2007. The CEI, a measure of current economic conditions, has decreased slightly since its most recent high level in May 2008. The depth, duration and diffusion of the current decline in the LEI suggest that economic activity will continue to contract in the near term.
LEADING INDICATORS
Four of the seven components that make up the leading economic index increased in December. The positive contributors – from the largest positive contributor to the smallest – were the yield spread, productivity for the whole economy, stock prices, and operating surplus of corporations. The negative contributors – from the largest negative contributor to the smallest – were volume of expected output, consumer confidence, and order book volume.
With the 0.6 percent decrease in December, the leading economic index now stands at 93.8 (2004=100). Based on revised data, this index declined 1.0 percent in November and declined 1.8 percent in October. During the six-month span through December, the leading economic index decreased 5.9 percent, with two of the seven components advancing (diffusion index, six-month span equals 28.6 percent).
COINCIDENT INDICATORS
Three of the four components that make up the coincident economic index increased in December. The positive contributors – from the largest positive contributor to the smallest – were retail sales, employment, and real household disposable income. Industrial production declined in December.
With the increase of 0.1 percent in December, the coincident economic index now stands at 03.9 (2004=100). Based on revised data, this index decreased 0.1 percent in November and emained unchanged in October. During the six-month period through December, the coincident economic index decreased 0.2 percent, with two of the four components advancing (diffusion index, six-month span equals 50.0 percent).
"Like the rest of the world, there was a sharp deterioration in the U.K. economy at the end of 2008," said Jean-Claude Manini, The Conference Board's Senior Economist for Europe. "The effects of an expansionary policy mix may kick in later this year and lead to a modest recovery in output, but the current behaviour of the LEI for the U.K. does not indicate a recovery in economic activity in the near term."
