Leading Index May Show U.S. Economic Expansion Will Cool in Coming Months

The index of U.S. leading indicators probably climbed in April at the slowest rate in more than a year, a sign economic growth may cool to a more sustainable pace, economists said before reports today.

The Conference Board’s measure of the outlook for three to six months rose 0.2 percent, the smallest gain since March 2009, according to the median estimate of 59 economists surveyed by Bloomberg News. Other reports may show jobless claims were little changed last week and manufacturing in the Philadelphia region grew this month.

The initial factory-induced rebound from the worst recession since the 1930s, which is broadening to include advances in consumer spending and service industries, still faces hurdles. A slump in building permits, little letup in firings and retreating stock prices highlight risks to the strength of the recovery as concern over the European debt crisis mounts.

“Large gains in the leading index over the last year are fairly typical of an early rebound from recession and should give way to more moderate growth as the recovery matures,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Hiring is strengthening, but it will be several years before the labor market feels normal again.”

Economists’ estimates ranged from no change to gains of 0.7 percent. The figures from Conference Board, a New York-based research group, are due at 10 a.m.

Factories Expanding

Another report at the same time from the Federal Reserve Bank of Philadelphia will probably show the region’s factories expanded at a faster pace in May. Its general economic index probably rose to 21.3 from 20.2 in April, according to the survey median. Readings greater than zero signal growth.

A third report may show the number of applications for jobless benefits probably fell to 440,000 last week from 444,000 the prior week, the survey Showed. Claims have hovered in a narrow range around 450,000 since mid March. The Labor Department’s figures are due at 8:30 a.m.

Four of the 10 indicators in the leading index probably contributed to the April gain, led by the interest-rate spread, increasing stock prices and longer factory workweeks.

The rate spread and stocks may be less supportive this month. The gap between 10-year Treasury note yields and the overnight fed funds rate will probably narrow in May as the note’s yield drops on growing concern over European debt.

Stocks Retreating

The Standard & Poor’s 500 Index averaged 1,197.32 last month, up from 1,152.05 in March. The index is down 6 percent so far this month on concern measures aimed at avoiding a Greek default will choke economic growth. In a worst-case scenario, contagion could spark another credit crunch reminiscent of the September 2008 financial collapse, leading to a double-dip global recession, according to New York University professor Nouriel Roubini.

A Commerce Department report this week showed building permits fell 11.5 percent in April to the lowest level in six months. The drop signals residential construction, which jumped last month as builders started to replace inventories depleted by buyers rushing to qualify for a government tax credit, will pause in coming months.

Manufacturing is one area showing few signs of letting up as companies rebuild stockpiles, exports grow and businesses invest in new equipment. The factory workweek climbed by 12 minutes to 41.2 hours in April, according to figures from the Labor Department.

Rising Exports

Caterpillar Inc., the world’s largest construction- equipment maker, is among companies profiting from the rebound in exports and orders. The Peoria, Illinois-based company projects sales to increase in 2010 as demand from mining and energy markets pick up, Chief Executive Officer Jim Owens said May 5 in an interview in Washington.

“We’re seeing a very sharp recovery in 2010,” Owens said in the interview. “Exports by the end of the year will be close to record levels.”

Even here, the outlook may be turning a little murkier. The jump in the value of the dollar caused by mounting concern over European debt means American goods will become more expensive to buyers overseas.

Seven of the 10 indicators that make up 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.

The economy will expand 3 percent this year, according to the median forecast of economists surveyed from April 29 to May 10. That compares with a 2.4 percent contraction last year.

                   Bloomberg Survey

======================================================
                           Initial      LEI   Philly
                            Claims               Fed
                            ,000’s     MOM%    Index
======================================================
Date of Release              05/20    05/20    05/20
Observation Period          15-May    April      May
------------------------------------------------------
Median                         440     0.2%     21.3
Average                        440     0.2%     21.1
High Forecast                  448     0.5%     25.0
Low Forecast                   425    -0.4%     15.0
Number of Participants          44       59       57
Previous                       444     1.4%     20.2
------------------------------------------------------
4CAST Ltd.                     440    -0.1%     15.0
Action Economics               440    -0.2%     21.0
Aletti Gestielle SGR          ---      0.1%     21.5
Ameriprise Financial Inc       435     0.5%     23.0
Banesto                       ---      0.3%     21.7
Bank of Tokyo- Mitsubishi      442    -0.4%     21.0
Barclays Capital               435    -0.1%     22.0
Bayerische Landesbank         ---      0.3%     ---
BBVA                           435     0.5%     20.4
BMO Capital Markets            440     0.2%     22.0
BNP Paribas                    440     0.2%     22.0
BofA Merrill Lynch Resear      439     0.1%     18.5
Briefing.com                   440     0.2%     22.0
Brusuelas Analytics            440     0.2%     17.5
Capital Economics             ---      0.1%     22.0
Citi                           445     0.3%     22.0
ClearView Economics           ---      ---      21.0
Commerzbank AG                 440     0.2%     21.0
Credit Agricole CIB           ---      ---      22.0
Credit Suisse                  435     0.1%     ---
Daiwa Securities America      ---      0.1%     ---
Danske Bank                   ---      ---      22.0
DekaBank                      ---      0.2%     24.0
Desjardins Group               438     0.2%     25.0
Deutsche Bank Securities      ---      0.2%     22.0
Deutsche Postbank AG          ---      0.3%     ---
DZ Bank                       ---      0.3%     21.0
First Trust Advisors           440    -0.2%     23.1
Fortis                        ---      ---      21.0
Goldman, Sachs & Co.          ---      0.2%     21.4
Helaba                         445     0.2%     23.0
High Frequency Economics      ---      0.3%     ---
HSBC Markets                   445     ---      18.0
IDEAglobal                     435     0.5%     22.0
Informa Global Markets         440     0.3%     21.0
ING Financial Markets          435     0.3%     20.0
Insight Economics              440     0.2%     20.0
Intesa-SanPaulo               ---      ---      20.5
J.P. Morgan Chase              440     ---      21.0
Janney Montgomery Scott L     ---      0.3%     ---
Jefferies & Co.                440     ---      17.0
Johnson Illington Advisor     ---      0.1%     22.0
Landesbank Berlin              425     0.2%     15.0
Landesbank BW                 ---      0.2%     17.5
Maria Fiorini Ramirez Inc      440     ---      ---
MF Global                      440     0.2%     25.0
Mizuho Securities              448     0.4%     21.0
Moody’s Economy.com            442     0.2%     21.3
Morgan Keegan & Co.           ---      0.4%     ---
Morgan Stanley & Co.           440     0.1%     ---
Nomura Securities Intl.       ---      0.0%     20.0
Nord/LB                       ---      0.2%     ---
Pierpont Securities LLC        440     ---      ---
PineBridge Investments        ---      0.4%     19.5
PNC Bank                      ---      0.5%     ---
Raymond James                 ---      0.2%     ---
RBC Capital Markets            447     ---      22.0
RBS Securities Inc.            440     ---      ---
Ried, Thunberg & Co.           440     0.2%     24.0
Scotia Capital                 435     ---      21.0
Societe Generale              ---      ---      22.0
Standard Chartered            ---      ---      21.0
State Street Global Marke      442    -0.1%     20.7
Stone & McCarthy Research      440    -0.3%     16.2
TD Securities                  440     0.2%     18.0
Thomson Reuters/IFR            440     0.1%     20.0
Tullett Prebon                 440     0.2%     22.0
UBS                            440     0.1%     25.0
UniCredit Research             435     0.2%     ---
University of Maryland        ---      0.2%     ---
Wells Fargo & Co.             ---     -0.3%     ---
Westpac Banking Co.            440     0.1%     24.0
Woodley Park Research         ---      0.1%     22.1
Wrightson Associates           440    -0.1%     24.0
======================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net.

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