The index of U.S. leading economic indicators rose at a slower pace in October as businesses held back on investment in anticipation of domestic fiscal policy changes set to take effect in January.
The Conference Board’s gauge of the outlook for the next three to six months increased 0.2 percent after a revised 0.5 percent gain in September that was lower than initially reported, the New York-based group said today. Economists projected the October gauge would climb 0.1 percent, according to the median estimate in a Bloomberg survey.
The fiscal cliff of $607 billion in federal spending cuts and tax increases has been a hurdle for companies even as consumer sentiment has supported the household purchases that account for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke yesterday said that a budget deal could help make the coming year “a very good one” for the economy.
“If we look through this volatility, I think the recovery is gaining momentum” boosted by housing gains and pent-up demand in capital expenditures, said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who correctly projected the 0.2 percent rise. “The outlook is better than it has been over the last three or four years” even as the fiscal cliff remains a near-term obstacle, he said.
The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,387.78 at 10:20 a.m. New York time, after the Conference Board’s report was released.
Some businesses are pulling back on concern that hurtling over the fiscal cliff will damage the economy. Spending on equipment and software was little changed from June through September, the weakest reading since the second quarter of 2009, according to figures from the Commerce Department.
Estimates from 51 economists in the Bloomberg survey ranged from a decrease of 0.1 percent to an increase of 0.6 percent in the Conference Board’s leading index. The September figure was revised from a previously reported 0.6 percent gain.
Four of the 10 indicators in the index of leading economic indicators contributed to the increase, while two were unchanged. The interest-rate spread between the federal funds rate and the 10-year Treasury note and a credit gauge were among the indicators leading to the advance.
Ataman Ozyildirim, an economist at the Conference Board, said in a statement that the leading index “still points to modestly expanding economic activity in the near term.”
The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.1 percent in October, after a 0.2 percent rise the prior month.
The coincident index tracks payrolls, incomes, sales and production -- 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 0.3 percent in October after decreasing 0.1 percent the previous month.
In a separate report, the Labor Department said today fewer Americans filed applications for unemployment benefits last week as damage to the labor market caused by superstorm Sandy began to subside. Jobless claims decreased by 41,000 to 410,000 in the week ended Nov. 17, the department reported.
Building permits, a proxy for future construction, declined 2.7 percent in October to an 866,000 annual rate, reflecting less demand for multifamily construction, Commerce Department figures showed yesterday in Washington. Permits for single-family units rose to the highest since July 2008.
Housing starts in the U.S. climbed 3.6 percent last month to an 894,000 annual rate, exceeding the highest estimate in a Bloomberg survey, the agency also said.
“Recently, the housing market has shown some clear signs of improvement, as home sales, prices, and construction have all moved up since early this year,” Bernanke said yesterday in a speech in New York. He said it’s likely that “residential investment will be a source of economic growth and new jobs over the next couple of years.”
Bernanke also said policy makers will “do what we can” to support the recovery. The Fed is buying $40 billion a month of mortgage-backed securities and has said its benchmark interest rate is likely to stay near zero through the middle of 2015 as it seeks to spur growth and reduce a 7.9 percent unemployment rate.
Record-low mortgage rates and dwindling inventories are boosting orders for homebuilders and sales for companies such as Lowe’s Cos., the second-largest U.S. home-improvement retailer.
“Housing prices have bottomed now on a national basis, and in some markets you are seeing some good appreciation,” Chief Executive Officer Robert Niblock said in a Nov. 19 telephone interview from the company’s headquarters in Mooresville, North Carolina. “People are going to feel better about spending on their homes believing that in the future they’re going to be worth the same or more than what they are today.”
Lowe’s that day reported fiscal third-quarter profit that topped analysts’ estimates, sending shares up by the most in more than three years.