U.S. Leading Indicators Rise in Sign Growth May Pick Up by End of the Year

The index of U.S. leading indicators rose more than forecast in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011.

The Conference Board’s gauge of the outlook for the next three to six months rose 0.8 percent after a revised 0.4 percent drop in April, the New York-based research group said today. Another report showed consumer sentiment dropped more than forecast in June.

Declining fuel costs and an easing of supply bottlenecks stemming from the earthquake in Japan may help strengthen consumer spending and manufacturing in the third quarter. The reports bear out Federal Reserve forecasts that the slowdown in growth will prove temporary as commodity prices retreat.

“The outlook is better for the second half,” said Maury Harris, chief economist at UBS Securities LLC in New York. “We’re getting relief from gas prices, and you’re also going to see auto output go back up again as we get a renewed inflow of auto parts from Japan.”

Stocks rose, spurred by signs of progress on a bailout for Greece and the gain in the leading index. The Standard & Poor’s 500 Index rose 0.7 percent to 1,276.17 at 11:51 a.m. in New York. Treasury securities were little changed.

Economists forecast the leading index would rise 0.3 percent, according to the median of 51 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.4 percent to an increase of 0.7 percent.

Broad-Based Gain

Eight of the 10 components of the leading index contributed to the gain, led by the positive spread between short-and long- term interest rates, an increase in consumer expectations and a jump in building permits. A decline in supplier deliveries held back the advance.

Consumers’ outlook may not contribute this month. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 71.8 from 74.3 in May, the group said today. Economists forecast a reading of 74, according to the median estimate in a Bloomberg survey.

Consumer expectations for six months from now dropped to 66.8 from 69.5, the report showed. The decrease echoed the change in the Bloomberg gauge of consumers’ outlook released yesterday, which fell to the lowest level since March 2009. That report showed the outlook deteriorated most among households making from $15,000 to $40,000 a year and among older Americans.

The Michigan survey’s current conditions gauge decreased to 79.6, the lowest since October, from 81.9 the prior month.

Job Concerns

“Things have cooled off after better growth earlier in the year, and people are still worried about the labor market, housing and high gasoline prices,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who forecast the headline sentiment gauge would drop to 72. “If we get another break in gasoline prices, that will be very helpful for the consumer.”

That help may already be on the way. After reaching an almost three-year high of $3.99 a gallon on May 4, the average price of regular gasoline at the pump dropped to $3.68 yesterday, according to data from AAA, the largest auto group in the U.S.

Fed Chairman Ben S. Bernanke’s last week predicted the economy will pick up in the second half of the year as energy prices moderate and factory disruptions ease as suppliers of parts from Japan recover. At the same time, he said the central bank should maintain record stimulus to bolster a “frustratingly slow” recovery. Officials are scheduled to meet in Washington on June 21-22 to determine the course of policy.

Supply Disruptions

Supply-chain disruptions from Japan’s earthquake and tsunami in March are being resolved.

Honda Motor Co., Japan’s third-largest carmaker, said its North American vehicle production will return to normal in August for all models except Civics as parts suppliers recover.

“The light at the end of the tunnel is glowing brighter for us, represented by this significant improvement in our production situation,” John Mendel, executive vice president of U.S. sales, said in a statement May 26.

Another report today showed why consumers remained concerned about jobs. Payrolls dropped in 27 states in May, indicating the weakening in employment was broad-based. California led the nation with a 29,200 decrease followed by New York with 24,700 fewer jobs, figures from the Labor Department showed. The jobless rate fell in 24 states and rose in 13.

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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