Tags: Leading | Indicators | Rise | Economy | Momentum

Leading Indicators Rise in Sign Economy Gaining Momentum

Thursday, 18 November 2010 10:18 AM

The index of U.S. leading indicators rose in October for a fourth consecutive month on signs the Federal Reserve was preparing to take additional action to spur the world’s biggest economy.

The New York-based Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent for a second month, matching the median forecast of economists surveyed by Bloomberg News and capping the biggest back-to-back gains since February-March. Six of the 10 components increased.

The Standard & Poor’s 500 Index, one of the leading measures, rallied 3.7 percent last month as Fed Chairman Ben S. Bernanke and his colleagues indicated the central bank was ready to provide more stimulus. Combined with more cash in the banking system, a longer workweek and low borrowing costs, the gains are helping Americans mend tattered finances and lifting spending.

“The economy seems to be getting a little bit of momentum,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “We are seeing job growth and the private sector picking up a little bit.”

Other reports showed fewer workers than forecast filed claims for jobless benefits last week, and manufacturing in the region covered by the Fed Bank of Philadelphia expanded in November at the fastest pace of the year.

Claims Increase

Applications for unemployment insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13, Labor Department figures showed. The four-week moving average, a less volatile measure than the weekly figures, dropped to 443,000, the lowest level since September 2008.

The Philadelphia Fed’s general economic index rose to 22.5, the highest level since December, from 1 a month earlier. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The gauge was forecast to increase to 5, according to the median estimate in a Bloomberg survey.

Stocks added to earlier gains after the reports. The Standard & Poor’s 500 Index rose 1.4 percent to 1,194.98 at 10:04 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 2.94 percent from 2.88 percent late yesterday.

Estimates for the leading index of the 58 economists surveyed ranged from gains of 0.2 percent to 0.8 percent.

Biggest Contributors

The biggest contributors to the increase in the leading indicators were the spread between short- and long-term interest rates, and increases in stock prices and the money supply.

Bernanke said on Oct. 15 that more monetary stimulus would be warranted because inflation was too low and unemployment was too high. This month, policy makers announced a plan to purchase another $600 billion in Treasury securities to keep interest rates low and prevent inflation from slowing much more.

Shares rallied last month in anticipation of the Fed’s action. The October gain in the S&P 500 followed an 8.8 percent increase prior month, the best back-to-back performance in more than year.

The S&P 500 is little changed so far this month amid concern that the central bank is adding too much liquidity, raising the risk that prices will flare next year. The index climbed today on optimism Ireland is on the brink of accepting a bailout to rescue its indebted banks.

Coincident Measure

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 in October after no change the prior two months. The gauge 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 index of lagging indicators increased 0.1 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

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 money supply adjusted for inflation.

Gains in incomes and stock prices are helping households repair tattered finances more than a year into the economic recovery that began in June 2009.

Bank of America Corp., the biggest lender in the U.S., earmarked $5.6 billion for credit losses in the third quarter, down from $8.1 billion in the second quarter and $11.7 billion a year earlier. Net write-offs of uncollectible loans at the Charlotte, North Carolina-based lender declined 25 percent.

“Everything we see points to a continued recovery, albeit a slow recovery,” Bank of America Chief Executive Officer Brian T. Moynihan said at a company-sponsored conference Nov. 16. Commercial lending is starting to turn around and consumers are spending more on leisure, he said.

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The index of U.S. leading indicators rose in October for a fourth consecutive month on signs the Federal Reserve was preparing to take additional action to spur the world s biggest economy. The New York-based Conference Board s gauge of the outlook for the next three to...
Thursday, 18 November 2010 10:18 AM
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