Gauge of Economic Future Halts Fall
A key gauge of future economic activity rose in April, following two straight monthly declines, as the effects of the Federal Reserve’s aggressive rate-cutting campaign began seeping into the economy.
The Conference Board said its index of leading economic indicators rose 0.1% to 108.7 in April after slipping a revised 0.2% in March and 0.2% in February.
The improvement, which matched economists’ forecasts, reflects the positive effect of the Federal Reserve’s aggressive campaign to cut interest rates, which it launched at the start of the year, said Ken Goldstein, economist for the New York-based Conference Board.
“If you decrease the cost of capital then you make it easier for people to borrow to expand or to fix things up,” Goldstein said.
The index is closely watched because it indicates where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year.
Economists said the April increase, though small, is a sign that the economy is beginning to stabilize after months of decline.
“This is a glimmer of hope that the economy is beginning to stabilize,” said Sung Won Sohn, chief economist at Wells Fargo & Co. “Perhaps we can see the light of economic recovery at the end of the tunnel.”
But they also were cautious. Mark Vitner of First Union Corp. said, “It really doesn’t make me optimistic about the near-term outlook. I still think we’re in for a few more months of pain.”
The April increase was only the second in the last seven months. The cumulative change in the index over the last six months was a 1.3% decline.
Three consecutive declines in the index traditionally have been considered a sign that the economy is headed into recession.
In an attempt to stave off a recession, the Fed has slashed interest rates five times this year, on each occasion by a half percentage point. The most recent rate cut came Tuesday.
In a separate report Thursday, the Labor Department said initial applications for jobless benefits fell by 8,000 to a seasonally adjusted 380,000 for the week ending May 12.
The department also said that the number of workers laid off from their jobs in the first quarter was up 20% from a year ago to 305,000, with nearly half of the layoffs in the manufacturing sector.
The number of layoffs was the highest since the government began tracking them six years ago, the Labor Department said.
The report includes layoffs that last at least 31 days and involve at least 50 people from a single firm.
The Conference Board said three of 10 components that make up the leading indicators index rose last month: interest rate spread, money supply and stock prices. The negative contributors were average weekly initial claims for unemployment insurance, vendor performance, building permits, index of consumer expectations and manufacturers’ new orders for non-defense capital goods and materials.
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Index of Leading Economic Indicators
Seasonally adjusted index; 1996=100.
April: 108.7
Source: Conference Board
