Rates/Indicators the Effective Federal Funds Thesis

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8 for August, 2008, the most recent available (next release is October 20th). This represents a decline over the previous month, and the lowest level of the year. Over the past three months, this index has trended down. In June this was at 102.0, then 101.3 in July. Prior to that the level it had been stable all year (either 101.9 or 102.0).

In terms of individual components, the following components were up: average weekly unemployment initial claims, stock prices, manufacturing new orders (consumer goods) and index of consumer expectations. Of these, it should be noted that the stock prices are lower than at any other point this year except for July. Average weekly unemployment initial claims rising is a negative component, so a rise will reduce the leading indicators index. Manufacturing orders represented a slight increase but is well down for the year. Therefore, only consumer expectations made a positive contribution to the index.

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The indicators that declined were: average work week, supplier deliveries, manufacturing new orders (capital goods), building permits, money supply and interest rate spread. Of these, the work week represented a slight decline, but to its lowest level all year. Supplier deliveries, a measure of vendor performance, declined sharply. Manufacturing new orders (capital goods) has floated in a fairly broad range all year and is presently in the middle. Building permits are down significantly in the past month, and for the year as a whole.

The money supply has seen steady erosion all year, a trend that continued in August. The interest rate spread declined, but is high for the year. The interest rate spread has an inverse pattern to the rates themselves. As rates declined over the first part of the year, the spread was low. When rates stabilized over the summer, the spread was high, but also relatively stable......

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