Leading Economic Index in U.S. Rose 0.1% in February (Update2)
By Timothy R. Homan
March 18 (Bloomberg) -- The index of U.S. leading indicators rose 0.1 percent in February, the smallest gain in almost a year, pointing to an economy that may expand at a slower pace in the second half of 2010.
The increase in the New York-based Conference Board’s measure of the outlook for three to six months matched expectations and followed a 0.3 percent rise in January. Some of the indicators may have been depressed by snowstorms in parts of the country.
A pickup in manufacturing in the last half of 2009 that helped spearhead the recovery has prompted companies to slow the pace of job cuts. Stronger economic growth hinges on employment gains that have yet to occur, one reason Federal Reserve policy makers this week kept interest rates near zero.
“We don’t expect this to be an especially strong recovery,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who accurately forecast the LEI increase. At the same time, “growth is still positive,” he said, and the index “is still consistent with a gradual economic recovery.”
Stocks were little changed after a separate report showed manufacturing in the Philadelphia area expanded at a faster pace in March. The Fed Bank of Philadelphia’s general economic index rose to 18.9 from a February reading of 17.6. Readings greater than zero signal growth.
Stock Prices
The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,165.41 at 10:30 a.m. in New York.
Estimates for the February leading index ranged from a decline of 0.4 percent to a gain of 0.7 percent, according to the median of 56 projections in the Bloomberg News survey.
The LEI has increased for 11 straight months, the longest stretch since 2003-04.
“The indicators point to a slow recovery this summer,” Ken Goldstein, an economist at the Conference Board, said in a news release. “Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months.”
Separate reports today from the Labor Department showed that fewer Americans filed first-time claims for unemployment last week and consumer prices held steady.
Jobless Claims
Initial jobless claims decreased by 5,000 to 457,000 in the week ended March 13. The cost of living in the U.S. was unchanged in February. The measure was restrained by rents and cheaper gasoline. The core consumer price index rose 0.1 percent in February, capping the smallest year-over-year gain since 2004.
Four of the 10 indicators in the leading index contributed to the gain, led by the interest-rate spread and money supply. Six of the components fell. A decline in factory hours worked, fewer building permits and a drop in stock prices weighed on the index.
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in February, following no change a month earlier. 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 gauge of lagging indicators increased 0.3 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
Growth Forecast
The world’s largest economy will probably expand at a 2.7 percent from April through June and 2.8 percent in the third quarter, according to the median estimate of economists surveyed by Bloomberg earlier this month. The economy grew at a 5.9 percent pace in the final three months of 2009, the strongest performance in more than six years, according to the Commerce Department.
“In the U.S., things are definitely getting better,” Jeffrey Immelt, chief executive officer of General Electric Co., said at a conference in Washington last week. “Most indicators are firming or heading up.”
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 the money supply adjusted for inflation.
The Standard & Poor’s 500 Index averaged 1,089.16 in February, compared with 1,123.58 a month earlier. The Reuters/University of Michigan index of consumer expectations decreased in February to 68.4, from 70.1 the previous month.
Contributing to the decline in the overall index was the decline in hours worked by manufacturers, a reflection of blizzards in parts of the U.S. that forced some businesses to temporarily close.
U.S. factory workers’ hours fell to 39.5 in February, the lowest level since October, from 39.9 in January, according to data from the U.S. Labor Department.
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