Bloomberg News

U.S. Index of Leading Economic Indicators Probably Rose in May

June 17, 2011

June 17 (Bloomberg) -- The index of U.S. leading indicators probably rebounded in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011, economists forecast a report will show today.

The Conference Board’s gauge of the outlook for the next three to six months rose 0.3 percent after a 0.3 percent decline in April, according to the median estimate of 51 forecasts in a Bloomberg News survey. Another report may show consumer confidence was little changed this month.

Manufacturing and the rest of the economy may benefit in coming months from cheaper fuel prices and the easing of supply bottlenecks stemming from the earthquake in Japan. An expansion the Federal Reserve says is “moderate” may ensure interest rates stay close to zero until early 2012.

“We should expect to see some pickup in growth in coming months as temporary factors are unwound,” said Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto. “But growth is going to be fairly muted.”

The Conference Board’s report is due at 10 a.m. in New York. Estimates in the Bloomberg survey ranged from a decline of 0.4 percent to a gain of 0.7 percent.

The Reuters/University of Michigan’s preliminary estimate for June may show confidence eased to 74 from 74.3 at the end of the previous month, according to economists surveyed before the 9:55 a.m. release. The index averaged 89.1 during the last expansion that ended in December 2007.

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.

Interest Rates

Among the known components, those pointing to growth in May were: a positive spread between short- and long-term interest rates, rising consumer expectations, an increase in stocks and a gain in building permits. A decline in supplier deliveries weighed on the index.

The Standard & Poor’s 500 index averaged 1,338.31 in May, up 0.5 percent from April. Stocks have since tumbled on concerns of slowing global growth and possible European defaults.

Limited employment gains help explain why consumer sentiment is restrained. Employers boosted payrolls by 54,000 workers in May after a 232,000 increase the prior month, figures from the Labor Department showed on June 3.

The economy grew at an annual rate of 1.8 percent in the first quarter, down from 3.1 percent in the previous three months. Economists have been downgrading forecasts as recent data have shown manufacturing, consumer and business sentiment weakening.

Japan Earthquake

Supply-chain disruptions from Japan’s earthquake and tsunami in March prompted production and sales of U.S. cars to slow in May, while gasoline prices that approached $4 a gallon and further declines in home prices squeezed consumer spending.

Gasoline prices have since receded and supply chains are being restored, helping carmakers such as Ford Motor Co. renew production.

Honda Motor Co., Japan’s third-largest carmaker, said its North American vehicle production will return to normal in August as parts suppliers recover from Japan’s record earthquake.

“The light at the end of the tunnel is glowing brighter for us, represented by this significant improvement in our production situation,” John Mendel, executive vice president of U.S. sales, said in a statement May 26.

Toyota Motor Corp. yesterday said vehicle production at its North American plants is recovering faster than planned and will return to normal in September.

Full output of eight models, including Camry and Corolla cars, Sienna minivans and Highlander sport-utility vehicles, was restored June 6, and Tundra and Tacoma pickups and RAV4 and Lexus RX SUVs will reach that level by September, said Bob Carter, group vice president of U.S. sales.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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