Leading Indicators Index in U.S. Increases More Than Forecast

The index of U.S. leading economic indicators increased in December more than forecast, a sign the recovery will gather steam in the new year.

The Conference Board’s gauge of the outlook for the next three to six months rose 1.0 percent after a 1.1 percent gain in November, the New York-based group said today. The December reading, the sixth consecutive monthly increase, exceeded the 0.6 percent gain in the median forecast of economists surveyed by Bloomberg News.

Improved consumer expectations, fewer firings and rising stock prices are boosting the outlook for household spending, the biggest part of the economy. Even so, Federal Reserve policy makers have indicated that until faster economic growth fuels bigger job gains, they will stick to their plan to pump $600 billion into the economy through June.

“Most indicators are suggesting a pretty good head of momentum here,” James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, Minnesota, said before the report. “As confidence goes up, so does economic aggressiveness, and that will add to growth.”

The median forecast was based on a survey of 58 estimates that ranged from gains of 0.4 percent to 1.2 percent.

The biggest contributors to the increase in the leading index were a gain in building permits, the spread between short- and long-term interest rates, a drop in jobless claims, rising stock prices and improved consumer expectations.

Six of 10

Today’s report showed six of the 10 components contributed to the increase. Faster supplier deliveries and slower manufacturers’ orders for consumer goods and materials decreased.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in December after a 0.1 percent increase in November. The measure tracks payrolls, incomes, sales and production -- the gauges used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

The index of lagging indicators rose 0.3 percent last month. This measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Evidence the economic recovery is advancing has driven up U.S. stock prices. The Standard & Poor’s 500 Index gained 25 percent through yesterday since reaching a 10-month low on July 2. The gauge was up 1.9 percent so far in January.

Fed’s Bernanke

Fed Chairman Ben S. Bernanke said last week that “we see the economy strengthening,” while adding, “you’re not going to reduce unemployment at the pace that we’d like it to.” Fed Bank of St. Louis President James Bullard said in an interview that while the U.S. outlook has improved, he wants to see more evidence before altering the Fed’s plan to buy $600 billion in Treasuries through June.

Seven of the 10 measures that make up the Conference Board’s 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 equipment and money supply adjusted for inflation.

President Barack Obama signed into law an $858 billion bill on Dec. 17 extending Bush-era tax cuts for two years. The measure also renewed emergency jobless benefits for the long- term unemployed, cut 2011 payroll taxes by two percentage points and allows firms to depreciate 100 percent of capital expenditures over the course of 2011.

Tax Package

Economist John Herrmann at State Street Global Markets LLC in Boston said the tax package will boost consumer spending in early 2011 while Joe Lavorgna at Deutsche Bank Securities Inc. says the tax depreciation will boost capital spending.

Household spending this year will climb 3 percent, the most since 2005, according to the median forecast of economists surveyed this month. That’s up from a 2.6 percent median estimate in the December survey, before the legislation was signed.

The pickup in consumer spending complements factory growth that helped bring the economy out of the worst recession since the 1930s. Also boosting manufacturing, exports rose in November to the highest level since August 2008, according to Commerce Department data released Jan. 13.

Technology producers such as Intel Corp. are benefiting from increased capital spending. Intel Corp.’s sales may rise 10 percent this year, Chief Financial Officer Stacy Smith said in a Jan. 13 interview. The remarks came after the world’s largest maker of computer chips forecast first-quarter sales that may exceed analysts’ estimates. Santa Clara, California-based Intel had revenue of $43.6 billion in 2010, an increase of 24 percent from 2009.

“In 2011, everything gets better,” Paul Otellini, the company’s chief executive officer, said on a teleconference with analysts. “The economy is forecast to improve.”

To contact the reporter on this story: 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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