Sept. 21 (Bloomberg) -- The index of U.S. leading economic indicators probably rose in August, capping the longest stretch of gains since 2004 and signaling a recovery is under way, economists said before a report today.

The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.7 percent, the fifth straight increase, according to the median forecast of 48 economists surveyed by Bloomberg News.

The gains in stock prices, consumer confidence and homebuilding that are buoying the leading index reinforce Federal Reserve Chairman Ben S. Bernanke’s view that the worst recession since the Great Depression has probably ended. At the same time, rising unemployment and tight credit are reminders that a rebound will be slow and gradual.

“This is a clear sign the recovery is well on track,” said John Herrmann, president of Herrmann Forecasting in Summit, New Jersey. While “we’re seeing broad-based improvement,” he said, there will still be “a few more months of labor-market adjustment and restrained job growth.”

The New York-based Conference Board’s index is due at 10 a.m. Survey estimates ranged from unchanged to a gain of 1 percent.

The Standard & Poor’s 500 Index has soared 58 percent since March 9, when it hit a 12-year low, as optimism grew that the U.S. was pulling out of the downturn. The index average jumped in August from the previous month likely adding to the leading indicators gauge.

Construction, Consumers

Building permits, a sign of future construction, also may have contributed. Permits rose 2.7 percent to a 579,000 annual rate in August, the Commerce Department said on Sept. 17.

Another boost probably came from a gain in the Reuters/University of Michigan index of consumer expectations six months from now, considered a proxy for future spending. The expectations measure rose to 65 in August and this month climbed to 69.2, according to a preliminary reading.

Officials at some companies are already seeing a pickup in demand. Best Buy Co., the world’s largest electronics retailer, raised its full-year earnings forecast last week even while reporting a drop in second-quarter profit, citing “improving trends” for sales.

“Customer traffic patterns have started to indicate signs of stability,” Jim Muehlbauer, chief financial officer for Richfield, Minnesota-based Best Buy, said in a Sept. 15 statement.

Jobless Claims

The average number of weekly applications for unemployment benefits rose in August from the prior month, probably subtracting from the leading index and a reminder that consumer spending is unlikely to lead the recovery.

Economists predict claims will subside gradually. The number of applications dropped by 12,000 to 545,000 in the week ended Sept. 12, according to Labor Department data, while the total number of people collecting benefits rose.

The economic expansion projected to start this quarter won’t be enough to prevent the unemployment rate from reaching 10 percent by the end of the year for the first time since 1983, according to a Bloomberg survey of economists this month. The rate rose to 9.7 percent in August from 9.4 percent in July.

Unemployment rose in 27 U.S. states in August, with California, Nevada and Rhode Island reaching record levels of joblessness, the Labor Department reported Sept. 18 in Washington. California’s unemployment rate reached 12.2 percent and Nevada’s climbed to 13.2 percent.

“There’s still a fair amount of weakness in some of the larger states,” said Steven Cochrane, director of regional economics at Moody’s Economy.com in West Chester, Pennsylvania. “State finances are probably going to be among the last of all the various components of the broad economy to turn around.”

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Bloomberg Survey

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LEI

MOM% =====================================

Date of Release 09/21 Observation Period Aug. ------------------------------------- Median 0.7% Average 0.7% High Forecast 1.0% Low Forecast 0.0% Number of Participants 48 Previous 0.6% ------------------------------------- 4CAST Ltd. 0.6% Action Economics 0.6% Aletti Gestielle SGR 0.8% Ameriprise Financial Inc 0.6% Argus Research Corp. 0.7% Bank of Tokyo- Mitsubishi 0.7% Bantleon Bank AG 0.7% Barclays Capital 0.7% Bayerische Landesbank 0.7% BBVA 0.8% BMO Capital Markets 0.7% BNP Paribas 0.8% Capital Economics 0.7% Citi 0.6% Credit Suisse 0.8% DekaBank 0.8% Desjardins Group 0.7% Deutsche Bank Securities 1.0% Deutsche Postbank AG 0.7% DZ Bank 0.6% First Trust Advisors 0.7% Helaba 0.8% Herrmann Forecasting 0.7% IDEAglobal 0.5% Informa Global Markets 0.9% ING Financial Markets 0.8% Insight Economics 0.8% Janney Montgomery Scott L 0.7% Jefferies & Co. 0.2% Johnson Illington Advisor 0.7% Landesbank Berlin 1.0% Landesbank BW 0.7% Merrill Lynch/BAS 0.4% Moody’s Economy.com 0.8% Morgan Keegan & Co. 0.0% Morgan Stanley & Co. 0.7% Newedge 0.7% Nomura Securities Intl. 0.8% Nord/LB 0.8% PNC Bank 0.5% Standard Chartered 0.7% Stone & McCarthy Research 0.7% TD Securities 1.0% UniCredit Research 0.8% Wells Fargo & Co. 0.7% WestLB AG 0.9% Westpac Banking Co. 1.0% Woodley Park Research 0.8% ====================================

To contact the reporter on this story:
Shobhana Chandra in Washington 
schandra1@bloomberg.net

Last Updated: September 21, 2009 00:01 EDT