Bloomberg News

Index of U.S. Leading Economic Indicators Rises for Third Month

January 26, 2012

Jan. 26 (Bloomberg) -- The index of U.S. leading indicators rose in December for a third month, indicating 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 increased 0.4 percent after climbing 0.2 percent in November, the New York-based group said today. The median forecast of 44 economists surveyed by Bloomberg News called for a gain of 0.7 percent. Today’s report marked the first time since 1996 that the components of the index changed.

Gains in manufacturing and consumer spending, the biggest part of the economy, are sustaining the expansion. At the same time, the European debt crisis threatens to limit growth, helping explain why the Federal Reserve yesterday said it’ll keep the benchmark interest rate low until at least late 2014.

“Economic activity picked up toward the end of 2011,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “This provides support for our forecast for continued but moderate economic expansion in 2012.”

Changes in the components of the leading index were announced earlier this month. Instead of the inflation-adjusted money supply, the Conference Board used its own Leading Credit Index, which aggregates measures of the yield curve, interest- rate swaps and the Fed’s senior loan officer survey. The Institute for Supply Management’s supplier deliveries gauge was replaced by the group’s index of new orders.

Components Change

In place of the Thomson Reuters/University of Michigan’s measure of consumer expectations, the Conference Board’s new index included an equally weighted average of the Michigan reading and its own measure. The Commerce Department’s gauge of orders for non-defense capital goods was replaced by the one that excludes commercial aircraft.

Estimates of economists in the Bloomberg survey ranged from gains of 0.5 percent to 1.1 percent.

Seven of the 10 indicators in the leading index contributed to the increase, led by the spread between short- and long-term interest rates, an improvement in claims and gain in the factory workweek.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.3 percent after a 0.1 percent advance in 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 of lagging indicators increased 0.3 percent.

Jobless Claims

An improving labor market is helping boost the outlook for growth. Applications for unemployment insurance payments dropped two weeks ago to the lowest level in almost four years, according to data from the Labor Department. Claims increased last week, displaying the usual volatility around the holiday season, a report today showed.

Consumer confidence is also steadying as fewer firings help ease concern about higher gasoline prices. The Bloomberg Consumer Comfort Index was minus 46.4 in the period ended Jan. 22 after minus 47.4 the prior week.

Among other signs of an expanding economy, orders for durable goods rose more than forecast in December, led by demand for aircraft, autos and business equipment, Commerce Department data showed today. Bookings for goods meant to last at least three years climbed 3 percent after a revised 4.3 percent gain the prior month that was more than previously estimated. The Bloomberg survey median projection was a 2 percent increase.

Sales Improve

Companies benefiting from rising sales include United Technologies Corp. The Hartford, Connecticut-based company said yesterday that its fourth-quarter profit climbed 11 percent as jet production at aircraft makers drove demand for commercial aerospace parts.

“There are some positive signs that the economic recovery looks to be gaining traction, especially here in the U.S.,” Chief Financial Officer Greg Hayes said on a Jan. 25 conference call. Still, “there’s plenty of uncertainty out there in the world economy.”

Fed Chairman Ben S. Bernanke said yesterday at a news conference that the recovery remains “fragile.” The central bank extended its previous pledge to keep rates low as inflation remains tame and more than two years of economic growth have failed to push unemployment below 8.5 percent.

“Economic conditions -- including low rates of resource utilization and subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” Fed policy makers said in a statement released in Washington yesterday.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Christopher Wellisz

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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


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