The Conference Board (CB): What It Means and How It Works (2024)

What Is the Conference Board (CB)?

The Conference Board (CB) is a not-for-profit research organization that distributes vital economic information to its peer-to-peer business members. Founded in 1916, this member-driven economic think tank is a widely quoted private source of business intelligence.

Understanding the Conference Board (CB)

Based in New York, with offices across Belgium, China, Kuwait, Singapore, and Canada, the CB aims to delve into the issues which companies regularly grapple with daily. These everyday concerns may include top-line growth in a shifting economic environment and corporate governance standards.

According to the Conference Board’s website, the primary agenda is to help leaders navigate the most significant issues facing business, to help these leaders better serve society at large. The group accomplishes this goal by reflecting on the input and real-world challenges of its member base.

The purpose of the Conference Board'sbusiness cycle indicators(BCI) is to provide ways for analyzing the expansions and contractions of the economic cycle. TheComposite Index of Leading Indicators(CILI) is one of three components of the BCI; the other two are theComposite Index of Coincident Indicators and theComposite Index of Lagging Indicators. Since the leading-indicators component attempts to judge the future state of the economy, it is by far the most widely followed. But before we explore its components and the ways in which it is interpreted, let's take a look at some background of the overall BCI.

After the disaster of the Great Depression, economists were eagerly searching for ways to detect the next economic downturn. The development of the BCI started in the 1930s as Arthur Burns and Wesley Mitchell of theNational Bureau of Economic Research(NBER) began experimenting with the patterns showing up in the NBER's data. They called these patternsbusiness cycles and, in their 1946 book "Measuring Business Cycles," described them as "expansions occurring at about the same time in many economic activities, followed by similarly general recessions,contractions, and revivals which merge into the expansion phase of the next cycle."

This early research represents the beginning of the study of the business cycle by means of economic indicators. Much of the following development of this 'indicator approach' was pursued 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 still considered the "father of the leading indicators."

By the late 1960s, the U.S. Department of Commerce was producing material resembling the model for the board's current BCI. The CB became the official publisher of the BCI, taking over from the government, in December 1995. As of 2023, it releases the BCI for Japan, India, Germany, France, China, Brazil, Australia, and the United States. In addition, it releases Glba and Euro Area indicators.

Throughout the year, The CB sponsors multiple worldwide conferences, which focus on a variety of themes and topics, such as:

• Employee benefits and compensation
• Talent management strategies
• Employee health care
• Leadership
• Executive coaching
• Joint ventures and strategic alliances
• Diversity and inclusion
• Merger integration

The CB does not participate in any arrangement which can appear as their supporting or opposing a candidate. Further, they do not do the following:

• Contribute to a campaign committee, a candidate, a political party, or a Political Action Committee.
• Publish or distribute written statements or make oral statements on behalf of or in opposition to a candidate.
• Nor do they pay salaries or expenses of campaign workers.
• Allow the use of its telephones, computers, facilities, or other assets for political campaign activity.

Business Cycles Indicators (BCI) Methodology

The three BCI indexes are called composite indexes because they incorporate multiple data components. According to their report published in collaboration with Eurostat, "Handbook on Cyclical Composite Indicators for Business Cycle Analysis" (2017), the board makes six considerations when choosing an appropriate cyclical component for any index. These six considerations are carried about with the following six statistical and economic tests:

1. Conformity: The data series must conform consistently in relation to the business cycle.
2. Consistent timing: The series must exhibit a consistent timing pattern as a leading, coincident, or lagging indicator.
3. Economic significance: Its cyclical timing must be economically logical.
4. Statistical adequacy: The data must be collected and processed in a statistically reliable way.
5. Smoothness: Its month-to-month movements must not be too erratic.
6. Currency: The series must be published on a reasonably prompt schedule, preferably every month.

The report goes on to qualify the following criteria:

When these standards are strictly applied, relatively few individual time series pass muster. No quarterly series qualifies for lack of currency and many monthly series lack smoothness. Indeed, there is no single time series that fully qualifies as an ideal cyclical indicator.

So, since few single components meet all six criteria, the Conference Board compiles multiple components into each 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 review below) that traditionally havepeakedorbottomedahead of the business cycle. The exact formula for calculating changes in the leading index is rather involved and not necessary for understanding the indicator.

Each of the 10 components is averaged, and a standardization factor is applied to equalize volatility. The CB releases the data on a monthly basis. Below are the ten components that make up the composite indicator.

1. Average weekly hours (manufacturing):Adjustments to the working hours of existing employees are usually made in advance of new hires or layoffs, which is why the measure of average weekly hours is a leading indicator for changes in unemployment.
2. Average weekly jobless claims for unemployment insurance:The CB reverses the value of this component from positive to negative because a positive reading indicates a loss in jobs. The initial jobless claims data is more sensitive to business conditions than other measures of unemployment, and as such leads the monthly unemployment data released by theDepartment of Labor.
3. Manufacturer's new orders for consumer goods/materials:This component is considered a leading indicator because increases in new orders for consumer goods and materials usually mean positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, a precursor to future revenue.
4. ISM new order index: The ISM new order index reflects the number of respondents reporting increased orders in the previous month compared to those reporting decreased orders, serving as a leading indicator of the business cycle. A reading above 50 suggests that orders have increased in the past month. The index is derived from a monthly survey conducted by the Institution for Supply Management.
5. Manufacturer's new orders for non-defense capital goods:As stated above, new orders lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods and materials components (#3).
6. Building permits for new private housing units:Building permits mean future construction, and construction moves ahead of other types of production, making this a leading indicator.
7. The Standard & Poor's 500 Stock Index: Theis considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy and interest rates. The S&P 500 is a good measure of the stock price as it incorporates the 500 largest companies in the United States.
8. Leading credit index: The leading credit index is composed of six financial indicators including two-years Swap Spread, LIBOR three-month minus three-month Treasury-Bill yield spread, debit balances in broker-dealer margin accounts, AAII Investors Sentiment, Senior Loan Officers' C&I loan survey regarding bank tightening credit to large and medium firms, and Security Repurchases from the Federal Reserve's Flow of Funds report. The Index functions as a predictor of future economic activity due to the forward-looking nature of these indicators.
9. Interest rate spread (10-year Treasury vs. Federal Funds target): The interest rate spread is often referred to as theyield curveand implies the expected direction of short-, medium- and long-term interest rates. Changes in the yield curve have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted—that is, when the longer-term returns are expected to be less than the short rates.
10. Index of consumer expectations: This is the only component of the leading indicators based solely on expectations. This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center and is released once a month.

Index of Coincident Indicators Methodology

The Composite Index of Coincident Indicators includes four sets of cyclical economic data. These components were chosen because they are generally in step with the current economic cycle. The economic data series are averaged for smoothness, and the volatility of each is then equalized using a predetermined standardization factor, which is updated once a year. The four components are:

1. Employees on non-agricultural payrolls: Released by the Bureau of Labor Statistics, this component is known as "payroll employment." Full-time, part-time, permanent or temporary workers are counted equally. This series is considered the most widely followed gauge of the health of the U.S. economy.
2. 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 adjusts wage accruals minus disbursem*nts (WALD) to smooth seasonal bonuses. The personal-income component measures both the general health of the economy and aggregate spending.
3. Index of Industrial Production: Gas and electric utilities, mining, and manufacturing production output are measured on a value-added basis. Industrial data sources contribute to values of shipments, employment levels, and product counts. This value-added measure has captured most of the movements in total industrial output.
4. Manufacturing and trade sales: The data comes from the National Income and Product Account calculations and attempts to capture real spending.

Index of Lagging IndicatorsMethodology

The Index of Lagging Indicators is made up of seven economic series that have historically registered a changeafterthe change has taken place. The seven lagging components are averaged to smooth their results, and adjusted forvolatility. They are:

1. The average duration of unemployment: This represents the average number of weeks an unemployed person has been out of work. The value is inverted to indicate a lower reading during a recession and a higher reading during an expansion. This is a lagging indicator because people have a harder time finding a job after arecessionhas already begun.
2. Inventories-to-sales ratio: The inventory-to-sales ratio is constructed by the Department of Commerce's Bureau of Economic Analysis (BEA) and represents manufacturing, wholesale and retail-business data. The ratio is adjusted forinflation. Increased inventory can mean sales estimates were missed, indicating a slowing economy.
3. A change in labor cost per unit of output (manufacturing): Constructed by CB using various sources of employee compensation data in manufacturing, the input values come from organizations such as the BEA and the Board of Governors of theFederal Reserve. The final number represents the rate of change in employee compensation compared to industrial output. When the economy is in recession, industrial production often slows faster than labor costs.
4. The average prime rate (banks): This component is compiled by the Fed's board of governors. Changes in the interbank loan interest rate tend to lag the overall economic activity because theFederal Open Market Committeesets this interest rate in response to economic growth and inflation.
5. Commercial and industrial loans outstanding: Records the total amount of outstanding loans andcommercial paper, once adjusted for inflation. The data comes from the Fed's board of governors. Because of the associated decline in corporate profits, the demand for loans tends to peak later than the overall economy. This component can lag a recovery by a year or more.
6. 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 tends to lag because people hesitate to take on new debt until they are confident that their income level is sustainable.
7. Consumer price index (CPI) services: This component comes from theBureau of Labor Statistics (BLS). Increases in prices for consumer-related service products generally occur in the early part of a recession. The Consumer Price Index (CPI)represents prices that have already changed, so this component lags other economic indicators.

The Conference Board publishes a monthly report called the Consumer Confidence Index®. It reflects prevailing business conditions and likely developments for the months ahead. The Consumer Confidence Index details consumer attitudes and buying intentions, with data broken down by age, income, and region. The Conference Board categorizes its content according to various centers or spheres of concentration that face businesses. These divisions (called centers) include:

• The Committee for Economic Development
• Corporate Governance
• Economy, Strategy, and Finance
• Human Capital
• Marketing and Communications

Each of these centers offers a unique setof valuable research and reference materials, blogs, white papers, and podcasts. However, perhaps the most valuable portal is to the board's Data and Analysis. Users may find the most recent data for the CCI and for the Leading Economic Indicators, which was a government-released data set until 1995. Users will also find the board's calendar of scheduled Economic Releases irreplaceable.

The Bottom Line

The Conference Board is a renowned non-profit research organization with a century-long history of providing comprehensive insights and data on economic, business, and labor market trends. It plays a crucial role in offering informed analysis, forecasts, and valuable research to a diverse range of stakeholders, including businesses, economists, policymakers, and researchers. The Conference Board's wide array of publications, including the Leading Economic Index and the Consumer Confidence Index, are highly respected and widely used for decision-making.