Leading Indicators Index in U.S. Rises More Than Forecast

The index of U.S. leading indicators climbed in April, a rebound from March that suggests the world’s largest economy will accelerate later this year.

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.6 percent in April after falling a revised 0.2 percent in March that was steeper than previously reported, the New York-based group said today. The median forecast of economists surveyed by Bloomberg called for a 0.2 percent increase.

Advancing stock prices and a recovering housing market may be propping up household spending, which accounts for about 70 percent of the economy. Still, slowing in manufacturing, automatic federal budget cuts and higher payrolls taxes threaten economic growth.

“We’re still definitely on the recovery path, but we anticipated all along that this is going to be a very gradual recovery,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who correctly predicted the reading.

He said multiple factors could drive economic improvement going forward. “It’s typically a lot of little things getting better at the same time. You get a little more job growth, a little more consumer spending, bank credit eases up a little more,” according to Brown.

Economist Estimates

Estimates of 45 economists in the Bloomberg survey ranged from no change to an increase of 0.7 percent for the leading index.

Stocks rose after the Conference Board report was released. The Standard & Poor’s 500 Index increased 0.6 percent to 1,659.65 at 10:05 a.m. in New York.

Seven of the 10 indicators in the leading index contributed to the increase, including a jump in building permits, a drop in the number of jobless claims and the widening interest-rate spread between the federal funds rate and 10-year Treasury notes.

“The biggest risk right now is the adverse impact of cuts in federal spending,” Ken Goldstein, an economist at the Conference Board, said in a statement today. “The biggest positive factor is the potential for improvement in the recovering housing and labor markets.”

Economic Activity

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in April after rising a revised 0.2 percent in the prior month.

The coincident index tracks payrolls, incomes, sales and production, which are the same measures the National Bureau of Economic Research uses to determine the beginning and end of U.S. recessions.

The gauge of lagging indicators also rose 0.1 percent after advancing a revised 0.2 percent in March.

Applications for unemployment insurance payments jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed yesterday. An improvement in the labor market has not continued so far this month.

Manufacturing is also struggling. The Federal Reserve Bank of Philadelphia said that its general economic index fell in May to minus 5.2 from 1.3 the prior month. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast called for 2.

New York

A report earlier this week showed that manufacturing in the New York region unexpectedly declined to minus 1.4 this month from 3.1 in April.

Builders pulled back last month after housing starts reached an almost five-year high in March, yet a surge in permits signals residential construction will soon rebound. Building permits jumped 14.3 percent to a 1.02 million annualized rate in April, the highest level since June 2008.

Higher home prices have boosted household wealth and may help bolster spending. Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3 percent from a year ago.

Economy Projected

Still, the economy is projected to grow at a 1.6 percent annual rate in the second quarter, down from a 2.5 percent annual rate in the first three months of the year, based on the median forecast in a Bloomberg economist survey from May 3 to May 8.

Part of the reason for the projected second-quarter slowdown is an increase in the levy used to finance Social Security, which returned to 6.2 percent from 4.2 percent. A worker earning $50,000 a year is taking home about $83 less a month as a result.

Those higher taxes are affecting corporations including Wal-Mart Stores Inc., the world’s largest retailer, which has cut prices on groceries and other necessities. Still, first-quarter sales at U.S. Wal-Mart stores open at least 12 months fell 1.4 percent, the first drop after six straight gains. Analysts estimated a 0.1 percent decline.

“Top line revenue was challenged by a number of issues,” William S. Simon, chief executive officer of Wal-Mart U.S., said in an earnings conference call yesterday. He cited “the 2 percent increase in payroll taxes, reduced inflation and some of the most unfavorable spring weather we’ve seen in recent years across much of the country impacted our business.”

-- Editors: Kevin Costelloe, Carlos Torres

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