Rise in Leading Economic Indicators Suggests Growth in the Spring

The Conference Board's index of leading economic indicators -- a gauge of future economic activity -- suggests we could be seeing a mild upturn this spring. October's reading rose 0.5%, and September's index was revised up from the initial estimate of 0.3% to 0.5%.

A Bloomberg survey had expected the LEI to rise 0.6% in October. The index rose 0.1% in August and 0.2% in July.

A Spring Surge for U.S. Economy?

Ken Goldstein, economist for the Conference Board, said the latest data may represent a pivotal point for the U.S. economy. "The economy is slow, but latest data on the U.S. LEI suggest that change may be around the corner," Goldstein said, in a statement. "Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring."

The six-month change in the index improved to 1.6% in October from 0.8% in September, although that's still substantially lower than the 4.6% increase for the previous six months through April 2010.

In October, six of the 10 index components increased, up from five in September: interest rate spread, stock prices, real money supply, average weekly manufacturing hours, index of consumer expectations and building permits were all up for the month.

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

So, while the end of the fiscal stimulus resulted in a slowdown in U.S. GDP growth in midyear, several other key dimensions of the economy are strong enough to sustain the recovery. Production in the nation's industrial sector continues to increase, exports -- aided by a slightly weaker dollar -- remain good, and retail sales, while certainly not robust, are adequate, particularly given pinched U.S. consumer budgets.

Assuming there are no additional credit market jitters, if tepid business investment starts to increase at historical rates, the U.S. economic expansion will likely gain momentum in early 2011.