Improving Job Market Driving Rebound in U.S. Growth: EconomyVictoria Stilwell
An improving job market and increasing factory production in March contributed to a jump in the U.S. index of leading indicators that signals the pace of economic growth is poised to snap back.
The Conference Board’s index, a gauge of the outlook for the next three to six months, rose 0.8 percent, the most since November, after a 0.5 percent gain in February, the New York-based group said today. The measure’s 6.1 percent advance over the past year is the biggest since July 2011.
“The fact that we’re seeing some broad improvement across components bodes pretty well for the economy,” said Sarah House, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, which is the best forecaster of the leading index over the past two years, according to data compiled by Bloomberg. “The underlying pace of activity is picking up.”
The fewest firings since before the last recession are helping lift consumer confidence this month, which probably means recent gains in spending can be sustained. Today’s report also showed access to credit continues to thaw, making it more likely that the rebound in housing, which has showed signs of cooling, can be revived.
“Financial conditions remain supportive, consumers are in good shape with their balance sheets, and business conditions are pretty good,” House said.
Stocks rose a fifth day, with the Standard & Poor’s 500 Index capping its longest streak since October, amid signs of improving corporate earnings. The S&P 500 climbed 0.4 percent to 1,871.89 at the close in New York.
The median forecast of 42 economists surveyed by Bloomberg called for an advance of 0.7 percent in the leading index. Estimates ranged from gains of 0.3 percent to 1 percent.
Six of the 10 indicators in the leading index contributed to the increase last month, led by the spread between short- and long-term interest rates, a drop in jobless claims and an increase in the length of the factory workweek.
“The economy is rebounding from widespread inclement weather and the strengthening in the labor market is beginning to have a positive impact on growth,” Ken Goldstein, an economist at the Conference Board, said in a statement today. “Overall, this is an optimistic report, but the focus will continue to be on whether improvements in the labor market can be sustained, fueling stronger economic performance over the next few months.”
The drop in applications for unemployment insurance payments last month and an increase in the factory workweek accounted for 0.4 percentage point of the total advance in the leading index.
Growth in the U.S. is projected to reach 2.7 percent this year compared with 1.9 percent in 2013, according to a Bloomberg survey of economists, supporting the Federal Reserve’s outlook that the economy has improved enough to continue unwinding its bond-buying program. A 3 percent annualized growth rate this quarter will follow a 1.5 percent gain in the first three months of the year, the survey shows.
The labor market has shown signs of shaking off its winter slump, with employers adding 192,000 workers to payrolls last month after a revised 197,000 gain in February that was larger than initially estimated, according to Labor Department data.
A separate report last week showed initial jobless claims are hovering near the lowest level since the last recession began almost seven years ago. The total number of people receiving benefits fell to 2.74 million in the week ended April 5, the fewest since December 2007, the Labor Department’s report showed.
That’s helping buoy confidence. While last month’s gain in the leading index was restrained by a drop in sentiment, the preliminary readings point to a rebound this month. The Thomson Reuters/University of Michigan expectations gauge climbed in April to an eight-month high.
Easier credit is also helping firm confidence and spending. Today’s report from the Conference Board showed the group’s leading credit index improved last month.
That may help awaken the housing market, which has shown signs of stalling as it’s challenged by higher interest rates and slow wage growth, which have put homeownership out of reach for some would-be buyers.
Housing starts climbed 2.8 percent to a less-than-forecast 946,000 annualized rate following February’s 920,000 pace, a Commerce Department report showed last week. Building permits, which are part of the leading index, declined 2.4 percent to a 990,000 annualized pace.
“After a slow December and January and some weather-related impact in February, we are beginning to see retail conditions improve,” Paul Toms, chief executive officer of Hooker Furniture Corp. in Martinsville, Virginia, said in an April 16 earnings call. “The overall economy seems to be more resilient and able to shake off bad news, there’s a firmer foundation under key indicators for our industry like housing, employment, the stock market and consumer confidence.”