Bloomberg News

Index of U.S. Leading Economic Indicators Rises 0.3%

June 21, 2012

Index of U.S. Leading Economic Indicators Rose

A Toll Brothers Inc. home under construction stands in Randolph, New Jersey. Photographer: Emile Wamsteker/Bloomberg

The index of U.S. leading economic indicators rose more than forecast in May, propelled by a jump in home-building permits.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.3 percent after a 0.1 percent drop in April, the New York-based group said today. Economists projected the gauge would rise by 0.1 percent, according to the median estimate in a Bloomberg News survey.

A labor market that’s lost momentum and more cautious spending among businesses are keeping economic growth from gaining speed. The Federal Reserve pledged yesterday to undertake further action to lower interest rates as a means of spurring growth.

“Everything is just growing at a really, really slow pace as decision makers in the U.S. keep a watchful eye on developments in Europe,” Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “When you look at various drivers of our forecast, there’s not one component that’s a major boost or a major drag.”

The Standard & Poor’s 500 Index fell 0.4 percent to 1,349.87 at 10:09 a.m. after the report was released. The yield on the 10-year Treasury note fell to 1.61 percent from 1.66 percent late yesterday.

Estimates from 47 economists in the Bloomberg survey ranged from a decrease of 0.3 percent to an increase of 0.4 percent.

Home-Building Permits

Seven of the 10 indicators in the leading index contributed to the increase, led by a pickup in home-building permits, which contributed 0.21 percentage point to the gain, and the spread between the Treasury 10-year note and the federal funds rate.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent for a second 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 following a 0.6 percent advance in April.

Economic growth that’s cooling globally alongside fears the European financial crisis could worsen have sent stock prices lower. The Standard & Poor’s 500 Index dropped 6.3 in May, the worst monthly decline in six months.

The U.S. economy expanded at a 1.9 percent pace in the first quarter of 2012, down from 3 percent in the prior three months, Commerce Department data show. In a sign of business caution, non-residential investment contributed 0.2 percentage point to growth, less than half the amount the prior quarter.

Labor Market

A labor market that’s lost steam may also make it harder for growth to accelerate. Payrolls expanded by 69,000 in May, the smallest gain in a year, Labor Department data show.

Fed policy makers said yesterday they would expand the central bank’s program to replace short-term bonds with longer- term debt to lower interest rates and spur economic growth. They also said the bank is “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability,” according to a statement from the Federal Open Market Committee.

Forecasters, nonetheless, are optimistic consumers can weather the slowdown and keep the economy growing. Gross domestic product will probably expand slightly faster, by 2.1 percent, from April to June, according to the median estimate of economists surveyed by Bloomberg from June 1 to June 5.

“I think most people would say that the economy is a little bit better, that it’s not robust, job growth’s not where it needs to be, but things generally speaking are just a little bit better,” Michael Schlotman, chief financial officer of Kroger Co. (KR:US), the largest U.S. grocery-store chain, said during a June 20 investor conference.

One bright spot comes from the homebuilding market. Building permits, a proxy for future construction, climbed in May to the highest level since September 2008, showing the combination of lower prices and record-low mortgage rates is underpinning demand and encouraging new projects, Commerce Department data showed June 19.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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


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