BLBG: Leading Economic Indicators in U.S. Increased 0.3% in October
By Bob Willis
Nov. 19 (Bloomberg) -- The index of U.S. leading indicators rose for a seventh consecutive month in October, signaling the economy will keep growing into 2010.
The Conference Board’s gauge of the outlook for the next three to six months rose 0.3 percent, less than forecast, after rising 1 percent in September. Another report showed claims for jobless benefits held at a 10-month low of 505,000 last week.
The rally in stocks and slowing job losses are giving consumers the confidence to spend, limiting the risk the economy will again retrench. A pickup in growth is dependent on gains in hiring that have yet to develop, one reason why Federal Reserve Chairman Ben S. Bernanke this week said the U.S. still faces “headwinds.”
“Leading indicators are still saying that the recession has ended and growth is likely to be positive for a second straight quarter,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “The headwinds of high unemployment and a credit squeeze for small businesses are not enough to knock the economy off its slow but steady recovery track.”
Economists forecast the leading indicators index would increase 0.4 percent, according to the median of 58 estimates in a Bloomberg News survey. Projections ranged from no change to an increase of 0.9 percent.
Six of the 10 indicators in today’s report contributed to the gain, led by the difference between short- and long-term borrowing costs, fewer jobless claims and higher equity prices. A longer factory workweek, a rise in money supply and an increase in factory orders for consumer goods also helped the index. Weaker consumer expectations, fewer building permits, shorter delivery times and fewer orders for business equipment were a drag on the index.
Jobless Claims
Figures from the Labor Department earlier today showed the four-week average of jobless claims decreased to 514,000 last week, the lowest level in a year, signaling firings are letting up as the economy recovers.
The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in October after falling 0.1 percent the prior month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Analysis to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators declined 0.2 percent. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
Fourth Quarter
The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 3.5 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.
Mounting expectations the economy will keep growing have resulted in a positive spread between the yield on the 10-year Treasury note and the overnight fed funds rate that’s one of the indicators in the leading index.
Falling jobless claims, a sign firings are diminishing, were also a major contributor to the index. Jobless claims averaged 524,500 in October, down from 540,300 a month earlier, according to the Conference Board’s report.
U.S. stocks continued to rally last month as reports suggested the economy was stabilizing. The Standard & Poor’s 500 index averaged 1,067.66 in October compared with 1,044.55 in September.
Building Permits
Fewer building permits and a decline in consumer confidence weighed on the leading index. The Commerce Department said yesterday that building permits dropped 4 percent in October.
The Reuters/University of Michigan’s reading on consumer expectations for the next six months fell at the end of October from the prior month’s level, which was the highest in two years.
Seven of 10 indicators for 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 the money supply adjusted for inflation.
“Final demand shows signs of strengthening, supported by the broad improvement in financial conditions,” Bernanke said in a speech before the Economic Club of New York this week. “Additionally, the beneficial influence of the inventory cycle on production should continue.”
‘Challenges Remain’
Bernanke also said that “significant economic challenges remain” due to a weak labor market and reduced bank lending.
Manufacturers that export to China and other emerging economies are among companies profiting from growth abroad. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, posted third-quarter earnings that beat analysts’ estimates and issued a full-year forecast that exceeded the highest prediction.
“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement Oct. 20. “When it comes, it can come quickly, and we, our dealers and our suppliers will be prepared.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
