Leading Economic Indicators Rise 1.1%, Pointing to Stronger Growth in 2011

Rising economic indicators
Rising economic indicators

Memo to investors: The U.S. economic expansion is strengthening. For proof, see November's leading economic indicators (LEI) index, which featured a 1.1% rise. That's the forward-looking index's biggest gain since March, even though it's a touch below a Bloomberg survey that forecast the LEI to rise 1.2%r. October's gain was revised slightly lower, to an 0.4% gain from the previous estimate of 0.5%. The index rose 0.6% in September.

Ken Goldstein, economist for The Conference Board, said November's LEI data provides further evidence of what the latest manufacturing, services and retail sales data have indicated to date: The U.S. economy is strengthening, and a "mild pickup" is ahead.

"The U.S. economy is showing some sparks of life in late 2010," Goldstein said, in a statement. "Overall, the indicators point to a mild pickup after a slow winter. Looking further out, possible clouds on the medium-term horizon include weaknesses in housing and employment."

A Rough Gauge at Best

In November, nine of the 10 index components increased, up from six in October: supplier deliveries, interest rate spread, average weekly initial jobless claims (inverted), real money supply, stock prices, the index of consumer expectations, average weekly manufacturing hours, manufacturers' new orders for consumer goods and materials, and manufacturers' new orders for nondefense capital goods. Only one component declined: building permits.

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The LEI is designed to forecast likely economic conditions six to nine months out, although economists caution that the index is 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 economic cycle turns.

The November report provides additional data points that support the economic bulls' analysis. Namely, that despite the end of 2009 fiscal stimulus package spending, several other key dimensions of the economy -- particularly manufacturing and export sales -- are strong enough to sustain the recovery. Retail sales, although not outstanding, also have been better than expected so far this fall.

Add the positive psychological impact of the now-passed tax-cut extension agreement, which President Obama is expected to sign Friday or Monday, and the picture is one of a U.S. economy with modest growth engines in place to increase demand and push GDP growth higher, at least for the first half of 2011.