Recovery gains momentum with sixth straight increase in leading indicators

More evidence that the U.S. economy is on a GDP growth track: the Index of Leading Economic Indicators jumped 1.0 percent in September, The Conference Board announced Thursday -- its sixth straight monthly increase. Except for average workweek and building permits, all of the leading indicators contributed positively to the index in September.

Ken Goldstein, economist for The Conference Board, said in a statement, "The LEI has risen for six consecutive months and the coincident economic index has increased in two of the last three months. These numbers strongly suggest that a recovery is developing. However, the intensity of that recovery will depend on how much, and how soon, demand picks up."
Economists surveyed by Bloomberg News had expected the index to rise 0.6 in September. The index rose a revised 0.4 percent in August, 1.0 percent in July, and 0.8 percent in June. The LEI index now stands at 103.5 (base year, 2004 =100).

During the six-month span through September, the leading economic index increased 5.7 percent, according to The Board. That's the fastest increase since 1983 and it's up sharply from the 2.7 percent decline for the previous six months – an increase that's indicative of an upturn in economic activity. The Board also called the strength in the components "widespread in recent months."

Eight of the 10 indicators that comprise the LEI increased in September: interest rate spread, index of consumer expectations, average weekly initial claims for unemployment insurance (inverted), stock prices, real money supply, index of supplier deliveries (vendor performance), manufacturers' new orders for non-defense capital goods and manufacturers' new orders for consumer goods and materials. The negative contributors were average weekly manufacturing hours and building permits.

The LEI index is designed to forecast likely economic conditions six to nine months out, although economists caution that the LEI is a general, multi-variable indicator, vulnerable to revisions. Hence, investors should use it as a rough gauge of overall macroeconomic trends, not as a metric that precisely pinpoints economic cycle turns.

Analysis: U.S. stock markets should like the September LEI statistic. The length (sixth month) and sharpness of the rise are indicative of a recovery that certainly has gained its footing, and perhaps even tacked on a little momentum. With that as a backdrop, barring an unexpected domestic crisis or international event, a double-dip recession for the U.S. economy would take many economists by surprise: the likelihood of a double dip at this juncture is about 10-15 percent.

That said, as recent U.S. economic expansions have demonstrated, the initial stage of a recovery does not guarantee job growth, or even the end of job layoffs. For example, after the 2001-2002 recession, the economy continued to lose jobs for more than a year after the economic recovery started. Given the large number of jobs lost during the 2007-2009 recession, a repeat of that workforce performance would be unacceptable, as it would drive already near-10 percent U.S. unemployment to even higher levels. Hence, the onus is on policy makers and business leaders to implement strategies that get the great American job machine going again and increase demand, to sustain what right now looks like an expansion that's gaining momentum.
Read Full Story

From Our Partners