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Leading Economic Indicators Rise More Than Forecast

Thursday, 23 September 2010 10:06 AM

The index of U.S. leading indicators rose in August more than forecast, signaling the economy will keep expanding through early next year.

The 0.3 percent gain in the New York-based Conference Board’s gauge of the prospects for the economy in the next three to six months follows a 0.1 percent increase in July. The index was forecast to rise 0.1 percent, according to the median estimate in a Bloomberg News survey of 56 economists.

A longer factory workweek, higher stock prices and a gain in building permits were among the reasons for the increase in the index. Federal Reserve policy makers this week said growth is likely to be “modest in the near term” and added they are prepared to ease monetary policy further if needed to support the recovery.

“Leading indicators is showing that growth will continue, but at about a 2 percent pace,” Ellen Zentner, a senior economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York, said before the report.

The index gained 0.7 percent on average in the 12 months through June. Estimates for the change in the index in August ranged from a decline of 0.4 percent to a gain of 0.5 percent, according to the Bloomberg survey.

Applications for unemployment benefits unexpectedly rose last week, a Labor Department report showed today. Initial jobless claims increased by 12,000 to 465,000 in the week ended Sept. 18.

Seven of the 10 indicators in the leading index contributed to the gain in August, led by the spread between the federal funds rate and the yield on the 10-year Treasury note and an increase in money supply.

Supplier Deliveries

Three components weighed on the index, including rising jobless claims, a drop in manufacturing supplier deliveries and manufacturers’ orders for consumer goods.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in August after a 0.1 percent gain the previous month.

The coincident index tracks payrolls, incomes, sales and production -- the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

The Cambridge, Massachusetts-based group this week said the worst U.S. recession since the Great Depression ended in June 2009, lasting 18 months.

The index of leading indicators began rising in April 2009, while the Conference Board’s coincident index turned positive in July 2009 after posting negative readings since January 2008.

Lagging Indicators

The gauge of lagging indicators increased 0.2 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

The Federal Open Market Committee said “the pace of economic recovery is likely to be modest in the near term” after its Sept. 21 meeting, adding that it is “prepared to provide additional accommodation if needed” to support the economic recovery and prices.

The FOMC kept its benchmark interest rate in a range of zero to 0.25 percent and maintained its policy of reinvesting principal payments from its securities holdings into U.S. Treasuries to keep money from draining out of the financial system.

The economy will likely be the top issue in the November mid-term elections, with polls indicating the Democrats are at risk of losing both houses of Congress.

Republican lawmakers are critical of President Barack Obama’s overhaul of the health-care system and financial regulations, and they say the $814 billion stimulus measure has done little to boost growth or create jobs.

Jobless Rate

Economists surveyed by Bloomberg this month forecast the unemployment rate will average 9.6 percent in the second half of the year while economic growth would average 2.1 percent after the first half’s average 2.65 percent pace.

Seven of the 10 indicators that make up the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods and the money supply adjusted for inflation.

Automakers including Ford Motor Co. are among manufacturers seeing sales picking up while holding below pre-recession levels.

“The auto business is pretty steady and coming back up a little bit,” Ford Chief Executive Officer Alan Mulally told reporters in Ann Arbor, Michigan on Sept. 17. The economy “is coming back slower than past recessions. We just need a little bit more consumer confidence to know we’re growing the economy.”

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The index of U.S. leading indicators rose in August more than forecast, signaling the economy will keep expanding through early next year.The 0.3 percent gain in the New York-based Conference Board s gauge of the prospects for the economy in the next three to six months...
Thursday, 23 September 2010 10:06 AM
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