U.S. Economy: Leading Index Signals Sustained Recovery


Recovery will probably extend into first half of 2010 after leading indicators increase for eighth straight month

By Bob Willis

(Bloomberg) — The U.S. economic recovery probably will extend into the first half of 2010 after the index of leading indicators increased in November for an eighth consecutive month.

The New York-based Conference Board's gauge of the outlook for the next three to six months rose 0.9 percent, more than forecast, after climbing 0.3 percent in October. Manufacturing in the Philadelphia region grew in December at the fastest pace in more than four years, a separate report showed.

"The nascent recovery is ending 2009 on a high note," said Richard DeKaser, chief economist at Woodley Park Research in Washington, who correctly forecast the gain in leading indicators. "The consumer is doing all right, housing is clearly in an upswing and business investment is improving."

A third report showed jobless claims unexpectedly rose last week, a reminder that the labor market will take time to strengthen as the expansion unfolds. The lack of jobs was one reason Federal Reserve policy makers yesterday said they will keep the benchmark interest rate low for an "extended period."

Stocks and commodities dropped and the dollar rose as investors shunned risky assets on concern mounting government debt levels around the world will hold back the global economic recovery. The Standard & Poor's 500 Index dropped 0.9 percent to 1,099.1 at 12:18 p.m. in New York after Citigroup Inc. sold stock at a discount and FedEx Corp.'s profit forecast trailed analysts' estimates.

Exceeds Forecast

Economists forecast the leading indicators index would increase 0.7 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from a gain of 0.5 percent to 1.2 percent. The increase capped the longest series of gains since 2003-2004.

The Fed Bank of Philadelphia's general economic index, which covers eastern Pennsylvania, southern New Jersey and Delaware, rose to 20.4 this month, the highest level since April 2005. Readings greater than zero signal growth.

The bank's gauge of average weekly hours worked increased to 6.4, the highest since December 2007, which indicates factories are closer to hiring.

General Electric Co. Chief Executive Officer Jeffrey Immelt said global orders for the world's biggest maker of jet engines, power-plant turbines and medical imaging equipment were picking up this quarter from the prior three months.

More Orders

"Orders will be improving sequentially as we get into the fourth quarter of the year," Immelt said at an investor meeting Dec. 15. GE had an order backlog of $174 billion at the end of the third quarter, with total company orders of $18.4 billion in the three months, including service contracts.

Figures from the Labor Department showed jobless claims increased to 480,000 last week from 473,000 a week earlier. The median forecast of economists surveyed projected a decline.

"Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," Fed policy makers said in their statement yesterday after holding interest rates near zero.

The U.S. House yesterday passed legislation that would expand unemployment benefits and give funds to state and local governments that are struggling with slow tax revenue to prevent them from having to fire employees.

Government Assistance

The jobs bill won't be debated by the Senate until next year, and it faces opposition from lawmakers concerned about its effect on the budget deficit.

Six of the 10 indicators in the leading index contributed to the gain, led by the difference between short-and long-term borrowing costs and fewer jobless claims. A longer factory workweek, higher stock prices, more building permits and a rise in money supply also helped the index.

Weaker consumer expectations, faster supplier deliveries and fewer capital goods orders limited the gain.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in November after no change the prior month. The 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 recession isn't over," Martin Feldstein, former president of the Cambridge, Massachusetts-based NBER and a member of its Business Cycle Dating Committee, said in an interview with Bloomberg Radio today. "2010 is going to be a very weak year," Feldstein also said, as American consumers limit spending and home prices may resume their slide.

The world's largest economy will probably expand at a 3 percent annual pace from October through December after growing at a 2.8 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy's worst performance since the 1930s.

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


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