Index of U.S. Leading Indicators Rises More than Forecast

The index of U.S. leading economic indicators climbed more than forecast in July, and consumer confidence unexpectedly improved this month, signs of sustained expansion in the world’s largest economy.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.4 percent, the biggest gain since February, after a revised 0.4 percent drop in June, the New York-based group said today. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 in July.

An improving housing market and fewer firings contributed to the advance in the leading index and may also be boosting confidence, raising the odds that consumer spending will keep advancing after retail sales rose more than forecast last month. At the same time, a rebound in gasoline prices and lingering concerns about Europe and looming changes to U.S. fiscal policy may prevent the recovery from gaining speed.

“The economy is not falling off a cliff,” said Michelle Girard, senior U.S. economist at RBS Securities Inc. in Stamford, Connecticut, whose sentiment forecast matched the closest among economists surveyed. “The theme of the last couple months with the data has been that, while it’s not necessarily improving sharply, the good news is that it is steady.”

Stocks rose on the better economic data and as Apple Inc. climbed to a record. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,418.16 at the 4 p.m. close in New York. Treasury securities also advanced, sending the yield on the benchmark 10- year note down to 1.81 percent from 1.83 percent late yesterday.

European Exports

In Europe today, euro-area exports rose in June for a second month, driven by a surge in shipments from Germany, as companies tapped into emerging markets to offset declining demand at home. In Asia, Indonesia’s government said it will increase capital spending by 15 percent next year, joining Southeast Asian nations that are upgrading infrastructure to woo investment and spur jobs for growth.

The U.S. leading indicator gauge was projected to rise 0.2 percent, according to the median estimate of 46 economists surveyed by Bloomberg. Forecasts ranged from no change to an increase of 0.6 percent.

Seven of the 10 components in the index contributed to the increase, led by a jump in building permits and fewer state jobless claims, while two indicators decreased. One, the average workweek, was unchanged in July.

Economy Expanding

The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.3 percent after rising 0.2 percent in June.

The coincident index tracks payrolls, incomes, sales and production -- the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

“The economy continues to improve at a very, very modest pace,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the increase in the LEI. “It should take away some of the recession forecasts.”

The consumer sentiment gauge was projected to be little changed at 72.2, according to the median forecast of 72 economists surveyed by Bloomberg. Estimates ranged from 69 to 75. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

Sentiment Breakdown

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, improved to 87.6, the highest number since January 2008, from 82.7 the prior month.

The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, fell to 64.5, an eight-month low, from 65.6 in July.

The drop in the outlook was in line with the Bloomberg Consumer Comfort Index, which fell to minus 22 this month, the lowest since November, a report yesterday showed. Views on current conditions diverged, with the Bloomberg index decreasing last week to the lowest level since January.

Rising confidence could help induce more households to head to shops and malls and restaurants, stoking the expansion after they gave it less support last quarter. Consumer spending, about 70 percent of the economy, grew at a 1.5 percent annual rate from April to June, down from a 2.4 percent pace in the previous three months, according to Commerce Department data.

Sales Climb

Retail sales advanced 0.8 percent in July, the biggest increase since February and the first in four months, easing some concern that elevated unemployment will cause households to retrench.

An uneven recovery in the job market is probably preventing more pronounced gains in spending. Payrolls increased by 163,000 workers in July, the most in five months, Labor Department figures showed this month. The jobless rate, nonetheless, rose to 8.3 percent, a five-month high.

Unemployment climbed in 44 states in July, showing last month’s increase was broad-based, according to Labor Department data issued today.

Alabama and Alaska registered the worst performance, with joblessness advancing by 0.5 percentage point in each, figures from the Labor Department showed today in Washington. Payrolls grew in 31 states last month, led by California and Michigan.

“Unemployment rates have remained around 8 percent, as we all know, for the past two quarters, and given all of this in the current economic situation, our perspective is we would need to see more stable growth signals before expecting U.S. consumer confidence levels to show a sustained increase,” Ajay Banga, president and chief executive officer of Mastercard Inc. (MA), said during an Aug. 1 earnings call.

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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