The index of U.S. leading indicators was unchanged in June, indicating the world’s largest economy will follow a fitful path in shaking off the effects of federal spending cuts and tax increases that slowed growth in the first half of 2013.
The Conference Board’s gauge of the outlook for the next three to six months was weaker than the median forecast of 47 economists in a Bloomberg survey that called for a 0.2 percent gain. Other reports today showed fewer Americans than projected filed claims for jobless benefits and manufacturing in the Philadelphia region unexpectedly accelerated.
“We expect things to continue to pick up, although it’s probably not going to be an even trajectory,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida. “We’re still definitely on the recovery path.” Brown was one of two economists in the Bloomberg survey to project the leading index would be unchanged.
Federal Reserve Chairman Ben S. Bernanke this week said policy makers could delay reducing the central bank’s bond buying program if the economy stumbled and emphasized the risks to growth from government budget cuts and slowing overseas markets. The most recent data showing American factories and the job market are improving mean the expansion will get a needed spark in the second half of the year.
The number of workers filing applications for unemployment insurance payments dropped by 24,000 to 334,000 in the week ended July 13, the fewest since early May, as the effects of the annual auto-plant shutdowns began to ebb, figures from the Labor Department showed. The median forecast of 49 economists surveyed by Bloomberg projected 345,000.
Stocks rose, sending benchmark indexes to records, amid better-than-estimated earnings and the drop in jobless claims. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,689.37 at the close in New York.
The leading index climbed a revised 0.2 percent in May, up from a previously reported 0.1 percent increase, the New York-based group said. Economists’ estimates for the June data in the Bloomberg survey ranged from no change to an increase of 0.5 percent.
The Federal Reserve Bank of Philadelphia’s general economic index increased to 19.8, exceeding all forecasts in a Bloomberg survey and the highest level since March 2011, from 12.5 the prior month, another report today showed. Readings greater than zero signal expansion in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.
The median forecast of 57 economists surveyed by Bloomberg called for a reading of 8.
The data follow figures this week that showed production climbed in the U.S. last month while manufacturing in the New York area expanded in July at the fastest pace in five months. Domestic demand is being bolstered by a pickup in automobile sales and a boost in capital spending as companies look past sequestration and global growth risks.
“The stuff that we have in hand is actually pretty encouraging,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who projected a reading of 17.5, the highest forecast in the Bloomberg survey. “We think the second half of the year is going to be better than the first.”
Four of the 10 indicators in the leading index weakened in June, led by fewer building permits and declines in orders to U.S. factories. Better credit conditions and fewer jobless claims were among the indicators that improved.
“Some segments of the economy are turning around faster than others, resulting in positive but moderate growth,” Ken Goldstein, an economist at the Conference Board, said in a statement. “The biggest uncertainties remain the pace of business spending, the improvements in consumer spending power and the impact of slower global growth on U.S. exports.”
CSX Corp. (CSX), the biggest eastern U.S. railroad, is among companies that are optimistic about the economy in the second half of 2013. Jacksonville, Florida-based CSX this week reported second-quarter profit that topped analysts’ estimates.
“Looking at the key economic indicators, they continue to point to slow, steady growth in the U.S. economy,” Clarence Gooden, chief commercial officer of CSX, said on a conference call yesterday. “Overall demand across the diverse markets we serve was generally positive for the quarter, consistent with the broader economy.”
Consumer sentiment last week held close to a five-year high, according to another report today. The Bloomberg Consumer Comfort Index fell to minus 28.4 in the period ended July 14, its first drop in five weeks, from minus 27.3 a week earlier that was the strongest reading since January 2008.
At the same time, Americans grew more pessimistic about the prospects for the world’s largest economy in a sign that not all is rosy. The monthly Bloomberg consumer economic expectations gauge fell to a five-month low of minus 5 in July from minus 1. The share of households saying the expansion will pickup was at a 10-month low.
Bernanke, in testimony to the House Financial Services Committee yesterday and the Senate Banking Committee today, said the central bank’s monthly asset purchases “are by no means on a preset course.” Fed policy makers have said they want to assure the economy and labor markets have sufficient momentum before reducing their $85 billion in monthly bond purchases.
While risks to the economy have diminished since late last year, Bernanke said, the slow pace of the recovery means that it remains “vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated.”
In addition, “the risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery.”
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