Leading economic indicators continue to rise, though less than expected

The Index of Leading Economic Indicators increased 0.3% in October -- its seventh straight monthly increase -- the Conference Board announced Thursday, providing more evidence that the U.S. economic recovery is progressing.

Economists surveyed by Bloomberg News had expected the index to rise 0.4% in October. The index rose a revised 1.0% in September, 0.4% in August, and 1.0% in July. The LEI index now stands at 103.8. (Base year, 2004 =100.)

Slow Growth Seen for 2010

Ken Goldstein, economist for The Conference Board, said in a statement, "The data indicates that economic recovery is finally setting in. We can expect slow growth through the first half of 2010. The pace of growth, however, will depend critically on how much demand picks up, and how soon."

Meanwhile, the Conference Board's Coincident Economic Index for the U.S. was unchanged in October, with employment continuing to fall and industrial production rising slightly.

Further, during the six-month span through October, the leading economic index increased 5.0%, according to the Board's methodology. That's up substantially from the 0.7% decline for the previous six months -- an increase that's indicative of an upturn in economic activity. The Board also said the strength among the leading indicators has "remained widespread in recent months."

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

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.

Economic Analysis

Investors should like the LEI trend (although U.S. stock markets were down early Thursday): a steady, seven-month rise. The length of the rise demonstrates that a recovery is underway, fundamentals are improving across almost the entire economy, except in employment, improvement in which has historically lagged behind the overall recovery.

Barring an unforeseen domestic crisis or international event, the likelihood of a double-dip recession is low. The key now is to get the job market to turn around to increase demand. Now, the onus is on policy makers and business executives alike to implement strategies that get 'the great American job creation machine" going again, to strengthen the expansion.

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