An economic selection index was derived for terminal sire sheep breeds or strains, using physical and financial results from New Zealand export lamb-producing flocks. The aggregate breeding value of the index comprised carcass lean weight and carcass total fat weight. Index measurements were live weight, ultrasonic fat depth and ultrasonic muscle depth. Economic values used for lean and fat weights (NZ$5·65 and NZ$–1·2 per kg, respectively) were the change in profit per kg increase in lean or fat weight from that in the average carcass of lambs slaughtered in 1984/85. The s.d. of the aggregate breeding value was NZS3·20, and the correlation between the full index and the aggregate breeding value was 0·23. This correlation fell to 0·18, 0·15 and 0·07, respectively, when muscle depth or fat depth or muscle and fat depths were omitted from the index. Selection on the full index, or on the index omitting muscle depth was expected to lead to an increase in carcass lean weight and a slight decrease in carcass fat weight. Selection on the index omitting fat depth, or selection on live weight alone, was expected to lead to an increase in both fat and lean weights.