Leading Economic Indicators Rise Again, Signaling Recovery

More encouraging signs for the U.S. economy emerged Thursday, as the Conference Board's closely-watched index of leading economic indicators rose a better-than-expected 0.9% in November and the Federal Reserve's survey of manufacturing activity in the mid-Atlantic states also climbed.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%The leading indicators index's strong move is especially encouraging, as investors certainly will see its eighth consecutive month of gains as a sign that a recovery is well underway.

What's more, both financial conditions and the housing sector are continuing to improve -- something that's especially important given that these two dimensions helped trigger the pronounced recession. The key now for policy makers and business executives alike is to get robust job growth to resume, to increase demand. Once that occurs, the U. S. economy will be on a sustainable growth track.

Economists surveyed by Bloomberg News had expected the index of leading economic indicators to rise 0.7% in November. The index rose a revised 0.3% in October, 1.0% in September, and 0.4% in August. The index now stands at 104.9.

Meanwhile, the Phildelphia Fed's survey of manufacturers in Pennsylvania, Delaware and New Jersey, rose to 20.4 in December from 16.7 in November. Readings above zero indicate an expansion; below zero, a contraction. A Bloomberg News economists survey had expected a 16.5 December reading for the Philly Fed Survey.

The leading economic indicators' rise points "to a bright new year. Looking ahead, we can expect a slowly improving economy through 2010," said Ken Goldstein, economist for The Conference Board, in a statement. "Employment largely held steady, making this the first month since December 2007 that it did not make a negative contribution to the index."

Meanwhile, The Conference Board's Coincident Economic Index for the U.S. rose 0.2% in November, following no change in October and an 0.1% decline in September.

Further, during the six-month span through November, the leading economic index increased 4.7%, according to The Board's methodology. That's up substantially from the 1.2% increase for the previous six months -- November 2008 to May 2009 -- an increase that's indicative of an upturn in economic activity. The Board also said the strength among the leading indicators "have remained widespread in recent months."

Six of the ten indicators that comprise the LEI increased in November: interest rate spread, average weekly initial jobless claims (an indicator which rises as claims fall), average weekly manufacturing hours, building permits, stock prices, and real money supply.

The indicators are designed to forecast likely economic conditions six to nine months out, although economists caution that the the index 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.

Which isn't to say they won't get excited about today's reading.
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