U.S. Leading Economic Indicators Increase for Third Month

The gauge of the U.S. economy’s prospects rose in September for a third month, signaling the recovery will extend into 2011.

The New York-based Conference Board’s index of leading economic indicators climbed 0.3 percent, matching the median forecast of 57 economists surveyed by Bloomberg News. The number of claims for jobless benefits last week was consistent with little progress in the labor market, another report showed.

Improving earnings forecasts by companies from EBay Inc. to Caterpillar Inc. propelled a rally in stocks, bolstering the view that gains in consumer spending, business investment and exports will keep the world’s largest economy afloat. At the same time, persistent unemployment is a reminder the Federal Reserve may need to do more to spur a pickup in growth.

The data “point toward a sustainable, albeit modest, economic recovery,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “The job market is showing no real improvement. It’s not good enough for the Fed.”

Another showed manufacturing in the region covered by the Philadelphia Fed expanded this month for the first time since July as factory payrolls grew. Its general economic index rose to 1 from minus 0.7 in September, the branch of the central bank said. Figures greater than zero signal growth.

Claims for unemployment insurance benefits declined by 23,000 to 452,000 in the week ended Oct. 15, Labor Department figures showed today. The prior week’s figures were revised up by 13,000, to the highest level since late August.

Elevated Unemployment

The pace of firings has been little changed since the start of the year, indicating unemployment will be slow to recede. A Fed report yesterday showed the economy is growing at a “modest pace” with companies still hesitant to hire, a reason central bankers may ease monetary policy.

The Standard & Poor’s 500 Index rose 0.2 percent to 1,180.26 at the 4 p.m. close in New York. The Dow Jones Industrial Average briefly surpassed its highest close since September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy.

Estimates for the leading index in the Bloomberg survey ranged from gains of 0.1 percent to 0.6 percent. The Conference Board revised the gain in August down to 0.1 percent from its 0.3 percent previous estimate.

Five of the 10 indicators in the leading index contributed to the increase, led by the interest-rate spread between the overnight federal funds rate and the yield on the 10-year Treasury note.

Rising Stocks

Equity gains also propelled the gauge and continue to signal sustained growth. The Standard & Poor’s 500 Index has climbed 3.2 percent in the first 20 days of this month on growing speculation the Fed will pump more cash into the economy to spur the recovery, a strategy known as quantitative easing.

“There would appear -- all else being equal -- to be a case for further action,” Fed Chairman Ben S. Bernanke said in an Oct. 15 speech. The recovery is likely to be “fairly modest in the near term,” and “the preconditions for a pickup in growth next year remain in place,” he said.

Caterpillar, the world’s largest maker of construction and mining equipment, raised its full-year earnings forecast and posted third-quarter profit that topped analysts’ estimates amid higher emerging-market demand.

EBay, owner of the second-most visited e-commerce site, forecast fourth-quarter sales and earnings that exceeded analysts’ estimates. The San Jose, California-based company has cut listing fees to lure sellers and has made its site easier to use. The company also is also benefitting from a rise in the number of consumers making purchases online.

Lack of Jobs

The economy isn’t creating enough jobs to cut unemployment, which is hovering near 10 percent.

Claims are “still consistent with a sluggish labor market,” said Jonathan Basile, an economist at Credit Suisse in New York. “We’ve been stuck in a range for most of the year. It doesn’t tell you that the layoff trend has improved dramatically this year.”

A Columbus Day holiday-shortened work schedule prompted several states to estimate claims for the prior week, a Labor Department spokesman said as the data were released to reporters. The final tallies turned out to be larger than the estimates, leading to the upward revision, he said.

Continuing Claims

The number of people continuing to receive jobless benefits fell by 9,000 in the week ended Oct. 9 to 4.44 million, the lowest since June 26.

The continuing claims figure does not include the number of Americans receiving extended and emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments increased by about 279,000 to 5.07 million in the week ended Oct. 2.

President Barack Obama and the Democrats are confronted with voter anger over the state of the economy less than two weeks before the congressional election. An Oct. 7-10 Bloomberg National Poll shows almost two-thirds of voters believe the country is on the wrong track and unemployment is the top concern for about half the electorate.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Bob Willis in Washington at Bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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