News Room - Business/Economics

Posted on 23 Oct 2009

U.S. Economy: Leading Index Climbs More Than Forecast

The index of U.S. leading economic indicators rose in September for a sixth straight month, showing the economy is likely to expand into early 2010.

 

The Conference Board’s gauge of the economic outlook for the next three to six months climbed a greater-than-forecast 1 percent, contributing to the biggest six-month gain in 26 years, the New York-based private research group said today. Other reports showed jobless claims rose and home prices fell.

 

More than $2 trillion in government stimulus programs worldwide have revived growth from the U.S. to China, signaling the worst global recession in the post-World War II era has come to an end. Caterpillar Inc. and Google Inc. are among the American companies reporting better-than-anticipated earnings and saying sales will probably improve next year.

 

“The recovery is here and it’s going to get a little stronger too,” said Jonathan Basile, an economist at Credit Suisse in New York, who accurately forecast the gain in the index. “We are mindful that there are headwinds, like there are in every recovery, but the leading index is telling you there won’t be a double dip,” Basile said, referring to a relapse into another recession.

 

The Dow Jones Industrial Average advanced for the first time in three days as reports by Travelers Cos., AT&T Inc. and McDonald’s Corp. added to the growing list of better-than- anticipated earnings. The index climbed 1.3 percent to close at 10,081.31.

 

China Gains

 

China’s economy expanded 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, the statistics bureau said in Beijing today. Combined with other reports that showed industrial production and retail sales accelerated in September, the figures sent stocks in Asia lower on concern the acceleration will spur policy makers in China to withdraw record fiscal and monetary stimulus in coming quarters.

 

Economists forecast the U.S. leading indicators index would increase 0.8 percent, according to the median of 60 estimates in a Bloomberg News survey. Projections ranged from increases of 0.3 percent to 1.1 percent. The Conference Board revised August figures down to show a 0.4 percent increase from a 0.6 percent previously reported gain.

 

The number of Americans filing first-time claims for unemployment insurance rose by 11,000 to 531,000 last week, figures from the Labor Department showed. The reading exceeded the 515,000 median estimate of economists surveyed and served as a reminder that the labor market will be slow to recover.

 

Decreasing Trend

 

The average number of applications over the past four weeks, a less volatile measure, showed some improvement as it fell to the lowest level in nine months.

 

Home prices nationally fell 0.3 percent in August from July and were down 3.6 percent over the past 12 months, a report from the Federal Housing Finance Agency also showed.

 

The leading index over the past six months was up 11.8 percent at an annual rate, the biggest gain since 1983.

 

Eight of the 10 indicators in today’s report contributed to the gain, led by the difference between short- and long-term borrowing costs, an increase in consumer expectations, lower jobless claims and higher equity prices.

 

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in September after rising 0.1 percent the prior two months. 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.

 

U.S. Expansion

 

The world’s largest economy probably expanded at a 3.2 percent annual pace from July through September after shrinking in each of the previous four quarters, according to the median estimate of economists surveyed earlier this month. The 3.8 percent contraction in the 12 months to June marked the economy’s worst performance since the 1930s.

 

The survey, taken in the first week of October, also showed the pace of growth will moderate this quarter as government programs such as “cash-for-clunkers” and first- time homebuyer tax credits expire. Since then, economists at JPMorgan Chase & Co. in New York have been among those raising fourth-quarter estimates on expectations that reductions in stockpiles will slow as factories rev up assembly lines.

 

Global stimulus programs should support economic growth next year and some governments may devote more funds to spur expansion, Caterpillar’s head of investor relations, Mike DeWalt, said Oct. 20.

 

Caterpillar, Google

 

Caterpillar predicted 2010 sales may increase as much as 25 percent from this year’s midpoint range. Chief Executive Officer Jim Owens said the just-ended quarter marked the low point for sales. Caterpillar plans to reduce dealer inventory by $3.5 billion in 2009 and has slashed its own inventory by $2 billion, with more possibly to come in the fourth quarter amid what Owens called the “the mother of all recessions.”

 

Google last week said net income rose 27 percent, helped by increased advertising and e-commerce. Chief Executive Officer Eric Schmidt said Oct. 15 the worst of the recession has passed and the company has “the confidence to be optimistic.”