Leading Economic Indicators Jump 1.1% in December

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In another sign that the U.S. economic recovery is intensifying, the Index of Leading Economic Indicators jumped 1.1% in December -- its ninth straight monthly increase -- the Conference Board announced Thursday.That was better news than had been predicted by a Bloomberg News economists survey, which had reported a consensus that the index would rise 0.7% in December, after a revised 1.0% increase in November and an 0.3% gain in October. The leading index, which is designed to forecast likely economic conditions six to nine months in the future, now stands at 106.4. (For the index's benchmark year of 2004, it was equal to 100.)

Separately, a dip in another closely watched indicator reflected some negatives in the U.S. economy. The Federal Reserve Bank of Philadelphia's Manufacturing Survey, commonly known as the "Philly Fed Survey," fell to 15.2 in January from a revised 22.5 in December. Readings above zero indicate an expansion; below zero, a contraction.

Economists surveyed by Bloomberg News had been expecting a 18.0 January reading for the Philly Fed Survey.

An Economy 'in Early Recovery'

Meanwhile, the Conference Board's Coincident Economic Index for the U.S. rose 0.1% in December after an 0.1% rise in both November and October. The Conference Board's Lagging Economic Index declined 0.2% in December, after an 0.5% decline in November, and a 0.2% decline in October.

Concerning the December index reports, Ken Goldstein, economist for the Conference Board said in a statement, "The indicators point to an economy in early recovery. The coincident economic index shows slow expansion of economic activity through December. The leading economic index suggests that the pace of improvement could pick up this spring."

Further, during the six-month span through December, the leading economic index increased 5.2%, according to the Board's methodology. That's up slightly from the 4.7% increase for the previous six months -- January 2009 to June 2009 -- an increase that's indicative of an upturn in economic activity. The Board also said the strengths among the leading indicators "have remained very widespread in recent months."

Eight of the 10 indicators that comprise the leading index increased in December: interest rate spread, building permits, average weekly initial claims for unemployment insurance (inverted), stock prices, index of consumer expectations, index of supplier deliveries (vendor performance), money supply, and manufacturers' new orders for non-defense capital goods. The average workweek of production workers and manufacturers' new orders for consumer goods and materials held steady in December.

Economic Analysis

Institutional investors -- and typical investors, for that matter -- will definitely will like the LEI trend: a steady, nine-month rise. The length of the rise demonstrates that an economic recovery is taking hold, with fundamentals improving across nearly the whole economy, except in employment, where improvement has historically lagged behind recoveries. But economists recommend taking the LEI numbers with caution, given that it's a general, multivariable indicator, vulnerable to revisions. Investors should use it as a rough gauge of overall macroeconomic trends -- not as a metric that precisely pinpoints turns in the economic cycle.

The obvious task now for policy makers is to turn the job market around. Once that occurs, the U.S. economy will be on a sustainable growth track.
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