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Aug. 18 (Bloomberg) -- The index of U.S. leading economic indicators climbed more than economists expected in July, boosted by an increase in money supply that may reflect a flight to safety.

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent after a 0.3 percent gain in June, the New York-based research group said today. Economists projected a 0.2 percent rise in July, according to the median forecast in a Bloomberg News survey.

Limited employment and income growth may keep consumer spending, which accounts for about 70 percent of the economy, from accelerating at the same time sentiment is depressed by a drop in stock prices. Federal Reserve policy makers said this month that the economic recovery is advancing “considerably slower” than expected.

“If you discount the impact of the money supply and interest rate spread what you’re left with is relatively flat or very slightly positive growth in the overall economy,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “There’s not a lot to sustain a real contribution to growth. When sentiment is looking the worst that it has in 30 years, it certainly doesn’t bode well.”

Bloomberg Survey

Estimates of the 51 economists surveyed by Bloomberg ranged from a drop of 0.5 percent to an increase of 0.6 percent.

Six of the 10 components of the Conference Board’s leading index contributed to the increase in July. In addition to money supply and interest rates spreads, they included weekly job claims figures.

The increase in the money supply boosted the index by 0.71 point, while the interest-rate spread between the overnight federal funds rate and the yield on the 10-year Treasury note pushed the measure up by 0.31 point.

The flight to cash from volatile equity markets may indicate lagging investor confidence.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.3 percent from the prior month.

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 gauge of lagging indicators rose 0.2 percent last month. The index measures business lending, length of employment, service prices and ratios of labor costs, inventories and consumer credit.

Seven of 10

Seven of the 10 indicators that make up the 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 goods and money supply adjusted for inflation.

The U.S. economy, the world’s largest, expanded at a 1.3 percent annual rate in the second quarter after almost stalling in the prior quarter, Commerce Department figures showed.

Employers added 117,000 workers to payrolls in July, as the unemployment rate declined to 9.1 percent.

Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month.

Consumer Spending

The decline in confidence is likely weighing on consumer spending, which dropped in June for the first time in almost two years. Purchases decreased 0.2 percent, after a 0.1 percent gain the prior month, Commerce Department figures showed Aug. 2.

The Fed expects a “somewhat slower pace of recovery over coming quarters,” and that the “downside risks to the economic outlook have increased,” the central bank said Aug. 9.

Lagging consumer confidence prompted Cosi Inc. to review staffing needs, said James Hyatt, the chief executive officer of the convenience restaurant company.

“We felt the consumer confidence was sliding through the quarter and we noticed their changes in spending patterns,” Hyatt said on an Aug. 11 conference call with analysts. “The economy has been so difficult, but that’s just the conditions. So there’s no whining around here. It’s the new normal,”

The Deerfield, Illinois-based convenience restaurant company on Aug. 11 reported a 0.2 percent decline in comparable sales for the second quarter.

To contact the reporter on this story: Jillian Berman in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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