Growth index shows sign of life

Leading indicators gain for first time in 6 months

December 21, 2004|By BLOOMBERG NEWS

NEW YORK - The Index of Leading Economic Indicators rose in November for the first time in six months, buoyed by higher stock prices, the Conference Board reported yesterday.

But the tiny 0.2 percent increase was too small to dispel concerns that the expansion will cool next year.

"The economy is likely to continue to move in fits and starts," said David H. Resler, chief economist at Nomura Securities International Inc. in New York, who correctly forecast the amount of the gain in the Conference Board's index.

The increase followed a drop of 0.4 percent in October that was steeper than initially estimated, the board said. Six of 10 indicators that make up the leading indicators index contributed to its rise.

Besides the increase in stock prices, other factors helping to push up the index were a decline in unemployment claims, expansion of the money supply, increases in consumer expectations, new orders for non-defense capital goods and for consumer goods.

The index is designed to chart the economy's direction in the next three to six months.

The Bush administration and economists predict that the gross domestic product will expand about 3.5 percent in 2005, compared with at least 3.9 percent this year. Annual economic growth averaged 3.3 percent in the past two decades, a period that includes two recessions and a record 10-year expansion.

Growth in the range of 3 percent to 4 percent "is pretty solid," said James S. Tisch, chief executive officer of Loews Corp., an owner of insurance, tobacco and energy businesses.

"It will be continued, sustained growth," he said. "That is just right for the economy. Any more than that and you significantly increase inflationary pressures, and any less than that and you are not performing at what your potential is."

The median forecast in a survey of 52 economists called for the leading indicators index to rise 0.1 percent after the drop of 0.3 percent initially reported for October. Forecasts ranged from a decline of 0.1 percent to an increase of 0.3 percent.

The Conference Board's index of coincident indicators, a gauge of the current state of the economy, rose 0.1 percent in November after increasing 0.4 percent the month before. The index tracks payrolls, incomes, sales and production.

The index of lagging indicators fell 0.1 percent last month after rising 0.1 percent in October. The Conference Board is a business research organization based in New York.

The index has dropped at a 2.2 percent annual rate over the past six months, the report showed. That is stronger than the annualized decline of at least 3.5 percent over six months that economist Ken Goldstein at the Conference Board says typically has signaled a recession.

The Standard & Poor's 500 index average rose 3.9 percent in November. Consumer expectations, as measured by the University of Michigan, rose in November to 85.2 from 83.8. The index rose again this month, to 88.8.

First-time unemployment claims dropped to a 336,750 weekly average last month, from 341,000 in October. It was the first time since July that claims averaged less than 340,000 a week.

The spread between yields on 10-year Treasury notes and the federal funds rate narrowed, which held down the index. Building permits fell, average weekly manufacturing hours declined and supplier delivery times decreased.

Building permits fell to an annual rate of 1.988 million in November, from 2.018 million, the Commerce Department said last week.

The Dow Jones industrial average rose 11.68 points yesterday to 10,661.60.

Retail sales rose 0.1 percent in November, an unexpected increase. Job growth and a drop in oil prices gave consumers more money to spend.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.