Index of U.S. Leading Economic Indicators Rose in January

The index of U.S. leading indicators rose for a second month in January, showing the world’s largest economy is on track to sustain the expansion in the first half of this year.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.2 percent from a 0.5 percent rise in December, the New York-based group said today. The gain matched the increase projected by economists, according to the median estimate in a Bloomberg survey.

Rising stock prices, stronger property values and sustained gains in hiring are boosting economic growth and holding up household balance sheets. Still, higher payroll taxes are trimming Americans’ paychecks while the likelihood of further U.S. budget cutbacks may limit the recovery’s acceleration.

“Activity was on the rise in part because of spillover effects from the ongoing housing recovery,” Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said before the report. Crandall is the top-ranked forecaster of the index for the past two years, according to data compiled by Bloomberg. At the same time, “you’ve got a sequence of budget-related concerns hanging over the consumer spending outlook,” he said.

The Standard & Poor’s 500 Index fell 0.7 percent to 1,500.89 at 10:05 a.m. in New York, following the release of the leading index and of a separate report showing that manufacturing in the Philadelphia region unexpectedly contracted in February for a second month.

Leading Index

Estimates from 49 economists in the Bloomberg survey ranged from increases of 0.1 percent to 0.5 percent in the leading index.

Six of the 10 indicators in the leading index contributed to the increase, led by stock prices and the interest-rate spread between the federal funds rate and 10-year Treasury notes.

“The indicators point to an underlying economy that remains relatively sound but sluggish,” Ken Goldstein, an economist at the Conference Board, said in a statement. “The biggest positive factor is housing.”

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.4 percent in January after a 1 percent gain in 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.

Lagging Indicators

The gauge of lagging indicators increased 0.4 percent in January after a 0.1 percent rise the previous month.

More Americans filed applications for unemployment benefits last week, returning to levels seen prior to the holiday period and indicating little change in the pace of firings, another report showed today.

Jobless claims increased by 20,000 to 362,000 in the week ended Feb. 16, the Labor Department reported in Washington. The median forecast of 48 economists surveyed by Bloomberg called for an increase to 355,000.

Advances in equity and home values are bolstering the expansion. The S&P 500 index climbed 5 percent in January, its biggest gain for the month since 1997.

The S&P/Case-Shiller index of property values in 20 U.S. cities increased 5.5 percent in the year through November, the biggest gain since August 2006, according to data released on Jan. 29.

The labor market continued to show signs of strength in January. Employers added 157,000 workers to payrolls in January after a revised 196,000 rise the prior month and a 247,000 surge in November, Labor Department data showed Feb. 1. Revisions added a total of 127,000 jobs in the last two months of 2012.

Consumer Spending

Consumers may trim their spending as the effects of a smaller paycheck set in. Congress and President Barack Obama allowed the payroll tax to return to its 2010 level of 6.2 percent from 4.2 percent at the start of the year. An American who earns $50,000 is taking home about $83 less a month because of the levy.

Additionally, economists are projecting Congress likely won’t find a resolution to prevent automatic spending cuts scheduled to begin March 1, which could further dampen economic growth.

The higher probability that sequestration will be realized means U.S. growth in 2013 likely will be about a quarter point slower than previously estimated, Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, said in a Feb. 14 research note.

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