Leading Indicators Offer Some Optimism

A key measure of future economic activity rose for the fourth consecutive month in July, surpassing analysts’ expectations and offering a hint that better times lie ahead for the struggling U.S. economy.

The Conference Board said Monday that its index of leading economic indicators moved up 0.3% to 109.9, the same increase as in June. Analysts had expected the reading to rise 0.1%.

The Federal Reserve’s aggressive campaign to slash interest rates and improve consumer expectations were among the factors that helped push the index higher last month, analysts said.

“Those are all things that are consistent with the idea that there may be some signs, although subtle, that the economy has bottomed and may be improving a bit,” said Dan Laufenberg, chief economist at American Express Financial Advisers. “The second quarter is the trough.”

The U.S. economy has been besieged over the last year by anemic corporate earnings, plunging stock prices, massive layoffs and a downward spiral in the manufacturing sector.

In an effort to stave off a recession, the Federal Reserve has slashed interest rates six times so far this year. The central bank is widely expected to make another quarter-percentage point cut when it meets today.

The index of leading economic indicators is closely watched because it indicates the overall direction of the U.S. economy in the next three to six months. It stood at 100 in 1996, its base year.

“The signal from the . . . index, in terms of its depth and breadth, is that economic conditions, sluggish through the entire first half of the year, could begin to make way for a better economy this fall,” said Conference Board economist Kenneth Goldstein.

Five of the 10 components of the leading economic indicators improved last month, the New York-based Conference Board said, including money supply, interest rate spread and consumer expectations.

Average weekly initial claims for unemployment insurance and average weekly manufacturing hours also were among the positive contributors to the leading index. The negative contributors to the index were stock prices, building permits and vendor performance.

Manufacturers’ new orders for non-defense capital goods and for consumer goods and materials held steady for July.

The group’s index of coincident indicators, which measures current economic activity, edged up 0.1% in July to 116.3. The index of lagging indicators, which reflects changes that have already occurred, decreased 0.7% to 104.7.

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Index of Leading Economic Indicators

Seasonally adjusted index; 1996=100.

July: 109.9

Source: Conference Board