Ahead of the Bell: Leading indicators seen rising

NEW YORK

Economists expect a gauge of future economic activity rose in May after a surprise drop in April.

Economists polled by Thomson Reuters expect the Conference Board's index of leading economic indicators rose 0.5 percent in May. It had slipped 0.1 percent in April, the first decline since March 2009.

The leading indicators index from the Conference Board, a private research group based in New York, is designed to forecast economic activity in the next three to six months.

Growth would be reassuring, since unemployment remains near 10 percent and the housing sector struggles. The debt crisis and stagnating growth prospects in several European countries has also touched off concerns that American exports could suffer.

April's decline was alarming because it signaled that economic growth, crucial to getting people back to work, could slow this summer. But the index can be volatile month to month -- before slipping in April, the leading indicators jumped 1.3 percent in March, the fastest pace of growth since May 2009.

Six of the index's 10 components deteriorated in April, while four improved. The dip came mostly from a drop in applications to build homes. The Commerce Department said on Wednesday that new building permits in May tumbled again after a federal tax credit program for homebuyers ended.

Without that tax credit, the housing sector may continue to weigh on the recovery. Homebuilder Hovnanian Enterprises Inc. said in early June that contracts for new home purchases in May were slower from a year ago.

Construction jobs have dwindled because of the real estate crash. The unemployment rate in the construction industry was over 20 percent in May.

High unemployment and a rocky recovery in the housing sector are keeping consumers' spending in check. Consumer spending powers about 70 percent of economic activity. The government said last week that retail sales revenue slid 1.2 percent in May, the biggest decline in eight months. The decline was mostly because of a drop-off in sales revenue of goods related to the auto and housing sector, and lower gas prices.

The manufacturing sector, which employs less than 10 percent of U.S. workers, is still expanding, however. Factories continue to crank up production as companies restock the inventories they let dwindle during the downturn and businesses increase investments in new equipment.