Signals Flashing Green for U.S. Economy as 2015 Road Clears

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Economic prospects in the U.S. are looking up for the rest of 2015.

The Conference Board’s index of leading indicators, a measure of the outlook for the next three to six months, rose 0.6 percent in June, according to figures from the New York-based group Thursday. The increase was double the median forecast of economists surveyed by Bloomberg. Other reports showed employers are hoarding staff, while consumer confidence is down from its best levels of the year.

An improving job market, still-low interest rates and easier access to credit are fostering a housing rebound that will help the world’s biggest economy overcome weakness in business investment and manufacturing. The stock market’s inability to sustain gains this year amid concerns over Greece and China is one aspect that is holding back further progress.

“The track that we’re on right now is clearly an improving one,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who correctly projected the rise and is the top forecaster for the leading index over the past two years in data compiled by Bloomberg. “The housing sector is almost certainly a plus right now.”

Stocks fell, extending declines for a third day, as results from 3M Co. and Caterpillar Inc. disappointed investors and commodities continued to slide. The Standard & Poor’s 500 Index declined 0.6 percent to 2,102.15 at the close in New York. The gauge has failed to set a record since May, leaving investors without a fresh high for the longest stretch since 2013.

Survey Results

The median forecast of 41 economists surveyed by Bloomberg projected the leading index would rise 0.3 percent. Estimates ranged from increases of 0.1 percent to 0.6 percent. The May reading was revised to show a 0.8 percent advance that was larger than previously estimated.

The increase in June is “pointing to continued strength in the economic outlook for the remainder of the year,” Ataman Ozyildirim, an economist at the Conference Board, said in a statement.

Six of the 10 indicators in the Conference Board’s measure contributed to the June increase, led by building permits and the spread between long- and short-term interest rates. Three were little changed and only one, stocks, declined.

Steady progress in employment has been a U.S. bright spot in the first half of 2015. Employers have added an average 208,330 workers to payrolls a month so far this year after a 259,670 average in 2014 that was the best since 1999.

Jobless Claims

Another report Thursday indicated those gains will probably continue. The number of Americans filing applications for unemployment benefits dropped last week to the lowest level in four decades, according to figures from the Labor Department. Claims plunged by 26,000 to 255,000 in the week ended July 18, the fewest since November 1973.

While the reading probably overstates the drop in firings because factory shutdowns and school vacations are making it difficult for the government to adjust the data, the underlying trend indicates employers are retaining workers to cater to a pickup in demand following a slump in early 2015.

Since early March, claims have been below the 300,000 level that economists say is typically consistent with an improving job market.

Hoarding Staff

“Companies are holding on to employees because they’re needed not just to satisfy current demand but also for growth initiatives,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who is among the best claims forecasters over the past two years, according to data compiled by Bloomberg. “It’s yet another sign we’re likely to see solid economic expansion in the second half.”

Events overseas may be giving households reason to be wary even as U.S. growth strengthens.

The Bloomberg Consumer Comfort Index retreated to 42.4 in the period ended July 19, the lowest level in five weeks, according to another report Thursday. The gauge has fallen throughout July, suffering a setback after reaching an eight-year high in April.

“These trends put consumer sentiment in an up-and-down-pattern,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement. While the gauge is holding above its average of 41.7 since 1985, sentiment is “not robust enough to break through to the next level and hold it.”

Retail Sales

Labor market healing has been slow to translate to consumer spending and factory orders. A strong dollar and lagging overseas prospects still hobble U.S. manufacturers, while consumers’ willingness to spend has been uneven. Retail sales unexpectedly declined in June.

Gross domestic product in the U.S. contracted at a 0.2 percent annualized rate in the three months ended March, the slowest pace in a year, according to Commerce Department data. Economists project GDP accelerated to a 2.7 percent pace from April through June, according to a Bloomberg survey ahead of the July 30 release on second-quarter growth.

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