The Conference Board (CB)
What Is the Conference Board (CB)?
The Conference Board (CB) is a not-for-benefit research organization that disseminates essential economic data to its peer-to-peer business members. Established in 1916, this member-driven economic think tank is a widely quoted private source of business intelligence.
Understanding the Conference Board
Based in New York, with offices across Belgium, China, and Canada, the CB means to dive into the issues which companies routinely wrestle with daily. These ordinary worries might incorporate top-line growth in a shifting economic environment and corporate governance standards.
As indicated by the Conference Board's website, the primary agenda is to assist leaders with exploring the main issues facing business, to assist these leaders with bettering serve society at large. The group achieves this goal by considering the information and real-world difficulties of its member base.
The purpose of the Conference Board's business cycle indicators (BCI) is to give approaches to investigating the expansions and contractions of the economic cycle. The Composite Index of Leading Indicators (CILI) is one of three parts of the BCI; the other two are the Composite Index of Coincident Indicators and the Composite Index of Lagging Indicators. Since the leading-indicators part endeavors to judge the future state of the economy, it is by a long shot the most widely followed. Be that as it may, before we investigate its parts and the manners by which it is deciphered, we should investigate some foundation of the overall BCI.
After the disaster of the Great Depression, financial experts were eagerly looking for ways of identifying the next economic downturn. The development of the BCI began during the 1930s as Arthur Burns and Wesley Mitchell of the National Bureau of Economic Research (NBER) started exploring different avenues regarding the patterns appearing in the NBER's data. They called these patterns business cycles and, in their 1946 book "Estimating Business Cycles," depicted them as "expansions happening at about similar time in numerous economic activities, trailed by comparatively broad recessions, contractions, and recoveries which converge into the expansion phase of the next cycle."
This early research addresses the beginning of the study of the business cycle through economic indicators. A large part of the accompanying development of this 'indicator approach' was sought after at the NBER under the supervision of Dr. Geoffrey Moore, an economics researcher who developed the concept of leading, lagging, and coincident business-cycle indicators, and is as yet viewed as the "father of the leading indicators."
By the late 1960s, the U.S. Department of Commerce was creating material looking like the model for the board's current BCI. The CB turned into the official distributer of the BCI, taking over from the government, in December 1995. Today, it releases the BCI for Mexico, France, the United Kingdom, South Korea, Japan, Germany, Australia, Spain, and the United States.
Regardless of its high-profile presence, the Conference Board keeps a strong apolitical stance, according to its charter, which states that the CB may not mediate in any political campaign, or campaign for the benefit of a candidate for public office.
Consistently, The CB supports various worldwide conferences, which center around different subjects and topics, for example,
- Employee benefits and compensation
- Ability management strategies
- Employee medical care
- Executive instructing
- Joint endeavors and strategic unions
- Diversity and consideration
- Merger integration
The CB participates in no arrangement which can show up as their supporting or restricting a candidate. Further, they don't do the accompanying:
- Add to a campaign committee, a candidate, a political party, or a Political Action Committee.
- Distribute or disperse written statements or offer oral expressions for or contrary to a candidate.
- Nor do they pay salaries or expenses of campaign workers.
- Permit the utilization of its phones, PCs, facilities, or different assets for political campaign activity.
Business Cycles Indicators (BCI) Methodology
The three BCI indexes are called composite indexes since they incorporate different data parts. As per their report "Utilizing Cyclical Indicators" (2004), the board makes six considerations while picking a fitting cyclical part for any index. These six considerations are carried about with the accompanying six statistical and economic tests:
- Conformity: The data series must adjust reliably corresponding to the business cycle.
- Predictable timing: The series must display a steady timing pattern as a leading, coincident, or lagging indicator.
- Economic significance: Its cyclical timing must be economically legitimate.
- Statistical adequacy: The data must be collected and handled in a statistically dependable manner.
- Perfection: Its month-to-month developments must not be too inconsistent.
- Currency: The series must be distributed on a sensibly quick schedule, ideally consistently.
The report proceeds to qualify the accompanying criteria:
By these standards, rigorously applied, moderately not many individual time series get by. No quarterly series fits the bill for lack of currency. Numerous monthly series lack perfection. To be sure, there is no single time series that fully qualifies as an optimal cyclical indicator.
Thus, since few single parts meet every one of the six criteria, the Conference Board gathers numerous parts into every one of the indexes of the BCI.
Index of Leading Indicators Methodology
The Index of Leading Indicators incorporates the data from 10 economic releases (which we audit below) that generally have peaked or bottomed ahead of the business cycle. The specific formula for working out changes in the leading index is fairly involved and excessive for grasping the indicator.
Every one of the 10 parts is averaged, and a standardization factor is applied to level volatility. In 1996 the value of the Index of Leading Indicators was re-based to address the average value of 100, and the CB releases the data consistently. Below are the ten parts that make up the composite indicator.
- Average week by week hours (manufacturing): Adjustments to the working hours of existing employees are typically made in advance of fresh recruits or cutbacks, which is the reason the measure of average week by week hours is a leading indicator for changes in unemployment.
- Average week by week jobless claims for unemployment insurance: The CB switches the value of this part from positive to negative in light of the fact that a positive perusing demonstrates a loss in jobs. The initial jobless claims data is more sensitive to business conditions than different measures of unemployment, and as such leads the monthly unemployment data delivered by the Department of Labor.
- Maker's new orders for consumer goods/materials: This part is viewed as a leading indicator since increases in new orders for consumer goods and materials generally mean positive changes in genuine production. The new orders decline inventory and add to unfilled orders, a forerunner to future revenue.
- Vendor performance (more slow deliveries diffusion index): This part measures the time it takes to deliver orders to industrial companies. Vendor performance leads the business cycle in light of the fact that an increase in delivery time can demonstrate rising demand for manufacturing supplies. Vendor performance is measured by a monthly survey from the Institute of Supply Management (ISM), which was known as the National Association of Purchasing Managers (NAPM) until 2002. This diffusion index measures one-half of the respondents reporting no change and all respondents reporting more slow deliveries.
- Producer's new orders for non-safeguard capital goods: As stated above, new orders lead the business cycle since increases in orders typically mean positive changes in real production and maybe rising demand. This measure is the maker's counterpart of new orders for consumer goods and materials parts (#3).
- Building permits for new private housing units: Building permits mean future construction, and construction pushes forward of different types of production, making this a leading indicator.
- The Standard and Poor's 500 Stock Index: The S&P 500 is viewed as a leading indicator since changes in stock prices mirror investor's expectations for the fate of the economy and interest rates. The S&P 500 is a decent measure of the stock price as it incorporates the 500 largest companies in the United States.
- Money Supply (M2): The money supply measures demand deposits, secured checks, savings deposits, currency, money market accounts, and small-division time deposits. Here, M2 is adjusted for inflation through the deflator distributed by the federal government in the GDP report. Bank lending, a factor adding to account deposits, for the most part declines when inflation increases quicker than the money supply, which can make economic expansion more troublesome. Consequently, an increase in demand deposits will show expectations that inflation will rise, bringing about a lessening in bank lending and an increase in savings.
- Interest rate spread (10-year Treasury versus Federal Funds target): The interest rate spread is frequently alluded to as the yield curve and infers the expected course of short-, medium-and long-term interest rates. Changes in the yield curve have been the most reliable predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted — that is, the point at which the longer-term returns are expected to be not exactly the short rates.
- Index of consumer expectations: This is the main part of the leading indicators based exclusively on expectations. This part leads the business cycle since consumer expectations can show future consumer spending or tightening. The data for this part comes from the University of Michigan's Survey Research Center and is delivered one time per month.
Index of Coincident Indicators Methodology
The Composite Index of Coincident Indicators incorporates four sets of cyclical economic data. These parts were picked in light of the fact that they are generally in step with the current economic cycle. The economic data series are averaged for perfection, and the volatility of each is then balanced utilizing a predetermined standardization factor, which is refreshed one time per year. The four parts are:
- Employees on non-horticultural payrolls: Released by the Bureau of Labor Statistics, this part is known as "payroll employment." Full-time, part-time, permanent or impermanent workers are counted similarly. This series is viewed as the most widely followed measure of the strength of the U.S. economy.
- Personal income, less transfer payments: This is a measure of all sources of income, adjusted for inflation, to measure real salaries and other earnings. Social Security payments are excluded. This measure changes wage accruals minus distributions (WALD) to smooth seasonal bonuses. The personal-income part measures both the overall strength of the economy and aggregate spending.
- Index of Industrial Production: Gas and electric utilities, mining, and manufacturing production output are measured on a value-added basis. Industrial data sources add to values of shipments, employment levels, and product counts. This value-added measure has captured the majority of the developments altogether industrial output.
- Manufacturing and trade sales: The data comes from the National Income and Product Account estimations and endeavors to capture real spending.
Index of Lagging Indicators Methodology
The Index of Lagging Indicators is comprised of seven economic series that have historically registered a change after the change has occurred. The seven lagging parts are averaged to smooth their outcomes, and adjusted for volatility. They are:
- The average duration of unemployment: This addresses the average number of weeks a jobless person has been jobless. The value is inverted to demonstrate a lower perusing during a recession and a higher perusing during an expansion. This is a lagging indicator since individuals make some harder memories finding a job after a recession has previously started.
- Inventories-to-sales ratio: The inventory-to-sales ratio is built by the Department of Commerce's Bureau of Economic Analysis (BEA) and addresses manufacturing, wholesale and retail-business data. The ratio is adjusted for inflation. Increased inventory can mean sales gauges were missed, showing an easing back economy.
- A change in labor cost per unit of output (manufacturing): Constructed by CB involving different sources of employee compensation data in manufacturing, the info values come from organizations like the BEA and the Board of Governors of the Federal Reserve. The last number addresses the rate of change in employee compensation compared to industrial output. At the point when the economy is in recession, industrial production frequently eases back quicker than labor costs.
- The average prime rate (banks): This part is ordered by the Fed's board of governors. Changes in the interbank loan interest rate will quite often lag the overall economic activity on the grounds that the Federal Open Market Committee sets this interest rate in response to economic growth and inflation.
- Commercial and industrial loans outstanding: Records the total amount of outstanding loans and commercial paper, once adjusted for inflation. The data comes from the Fed's board of governors. As a result of the associated decline in corporate profits, the demand for loans will in general top later than the overall economy. This part can lag a recovery by a year or more.
- The ratio of consumer installment credit to personal income: This ratio measures the relationship between consumer debt and income and comes from the Fed's board of governors. Consumer borrowing will in general lag since individuals wonder whether or not to assume new debt until they are certain that their income level is sustainable.
- Consumer price index (CPI) services: This part comes from the Bureau of Labor Statistics (BLS). Increases in prices for consumer-related service products generally happen in the early part of a recession. The Consumer Price Index (CPI) addresses prices that have previously changed, so this part lags other economic indicators.
The Conference Board distributes a monthly report called the Consumer Confidence Index\u00ae. It reflects winning business conditions and reasonable developments for the months ahead. The Consumer Confidence Index subtleties consumer perspectives and buying goals, with data broken down by age, income, and region. The Conference Board sorts its substance as per different centers or circles of concentration that face businesses. These divisions include:
- The Committee for Economic Development
- Corporate Governance
- Economy, Strategy, and Finance
- Human Capital
- Marketing and Communications
Every one of these centers offers a unique set of important research and reference materials, websites, white papers, and digital recordings. Nonetheless, maybe the most important portal is to the board's Data and Analysis. Users might track down the latest data for the CCI and for the Leading Economic Indicators, which was a government-delivered data set until 1995. Users will likewise find the board's calendar of scheduled Economic Releases irreplaceable.
- The Conference Board conveys to 2,000 businesses across different industries and geologies and is maybe best known for the Consumer Confidence Index\u00ae (CCI).
- Any company (large or small) may apply for membership to the Conference Board.
- The Conference Board (CB) is a not-for-benefit research organization that circulates crucial economic data to its peer-to-peer business members.
- The board's data, including assorted and exclusive resources, gives indispensable tools to industry and business leaders worldwide.