Bloomberg News

Leading Economic Indicators in U.S. Rise More Than Forecast

November 20, 2011

(Updates with economist comment in fourth paragraph.)

Nov. 18 (Bloomberg) -- The index of U.S. leading indicators climbed more than forecast in October, signaling the world’s largest economy will keep growing in early 2012.

The Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, the biggest jump since February, after a 0.1 percent September increase, the New York- based research group said today. The median forecast of 56 economists surveyed by Bloomberg News projected the gauge would advance 0.6 percent.

Gains in consumer spending, manufacturing and homebuilding, combined with fewer job losses, point to an economy that is weathering the turbulence in financial markets caused by the debt crisis in Europe. Nonetheless, a 9 percent jobless rate and political gridlock over deficit-cutting have hurt confidence, which may be a hurdle to a further pickup in the pace of growth.

“The economy looks to be getting better despite the continued drumbeat of negativity in financial markets,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who correctly forecast the gain. “That speaks to U.S. resiliency. If we can put some of these fiscal issues behind us, even for a short period of time, we might be able to come back.”

Stocks rose as yields on Italian and Spanish bonds fell after the European Central Bank bought the securities to ease the fallout from the debt crisis. The Standard & Poor’s 500 Index increased 0.1 percent to 1,217.25 at 10:10 a.m. in New York. Treasury securities dropped, pushing the yield on the benchmark 10-year note up to 1.99 percent from 1.96 percent late yesterday.

Survey Results

Estimates in the Bloomberg survey ranged from no change to an increase of 1 percent.

The index “is pointing to continued growth this winter, possibly even gaining a little momentum by spring,” Ken Goldstein, an economist at the Conference Board, said today in a statement. “The lack of confidence has been the biggest obstacle in generating forward momentum.”

Nine of the 10 components of the leading index contributed to the increase in October, led a jump in building permits, the spread between short- and long-term interest rates, a longer factory workweek and a drop in claims for jobless benefits.

A surge in stock prices also contributed to the increase in the gauge last month, reversing September’s plunge. The Standard & Poor’s 500 Index rose 11 percent in October, its best month since December 1991. The measure dropped 17 percent over the previous five months as concern over a default in Europe intensified.

Outlook Improves

An improvement in household sentiment has already given the leading index a boost this month. The University of Michigan index of consumer expectations for six months from now climbed to 56.2 in November, a five-month high, from 51.8 in October. Nonetheless, the measure remains below the 80.5 average of the previous expansion that ended in December 2007.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.2 percent from the prior 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 gauge was little changed in September and August.

The gauge of lagging indicators climbed 0.6 percent last month. The index measures business lending, length of employment, service prices and ratios of labor costs, inventories and consumer credit.

Index Breakdown

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.

The U.S. economy, the world’s largest, expanded at a 2.5 percent annual rate in the third quarter after growing at a 1.3 percent pace in the prior three months, according to Commerce Department figures.

Data in recent weeks have been better than forecast, suggesting the economy is picking up even more this quarter. Retail sales in October rose 0.5 percent, helped by the biggest jump in electronics purchases in two years, while industrial production increased 0.7 percent, reports showed this week. Building permits, a sign of future construction, rose 11 percent while housing starts fell a less-than-forecast 0.3 percent, a Commerce Department report showed.

‘Positive Signs’

“In North America, we see a slow recovery continuing,” Ellen Kullman, chairman and chief executive officer of DuPont Co., said in an Oct. 25 conference call. “While there are issues of unemployment and weak consumer confidence, there are also some positive signs such as rising retail and automotive sales. Industrial protection is growing.”

The job market is one area yet to see much improvement. Payrolls increased 80,000 in October, the smallest advance in four months, the Labor Department said Nov. 4. The unemployment rate fell to 9 percent from 9.1 percent in September. It’s hovered around 9 percent or more since April 2009.

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

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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