Index Hints Recovery Is Near
A key forecasting gauge for the U.S. economy posted its largest gain in almost six years in December, suggesting the economy could emerge from recession within the next three months, a private research firm said Tuesday.
The Conference Board said its U.S. index of leading economic indicators rose 1.2% in December after a gain of 0.8% in November. The December rise was the largest since February 1996.
The increase exceeded expectations of Wall Street economists, who had forecast the index would grow by 0.8% as the economy struggled to shake off the aftershocks of the Sept. 11 attacks.
“The fact that the increase was so strong in December, the fact that the index was up strongly in November, the longevity of the increase and the breadth throughout different sectors of the economy all go along with expectations that in one, two or three months the recession will be over,” said the board’s chief economist, Ken Goldstein.
The National Assn. of Manufacturers, however, was not as optimistic, as manufacturing remained one of the economy’s weakest spots.
“New orders for manufactured goods continued to be negative in December, so bets should be hedged for a weak and meandering recovery,” said the association’s chief economist, David Huether.
Federal Reserve Bank of Dallas President Robert McTeer, speaking in Texas before the report was released, also expressed caution.
He said it was premature to say whether “this is the beginning of the beginning,” but said the economy, which entered recession in March, was “certainly looking much better than two months ago.”
The Fed’s Federal Open Market Committee, which last year cut interest rates 11 times to a 40-year low, meets Jan. 29-30.
Goldstein said the rapidity with which consumer expectations bounced back, along with the large decline in initial claims for jobless benefits, were surprising components of the December report.
The strong consumer, labor, investment and housing sectors were “very positive signals,” he said.
He added that the Fed’s aggressive monetary policy, growth in the money supply, retail discounts and a fall in energy prices were contributors to “the reemergence of economic momentum.”
Another economic yardstick in the report, the so-called lagging index, which measures past trends in the economy, rose 0.1% last month after a 0.3% drop in November.
Eight of the 10 components that make up the leading indicators index rose in December, led by jobless claims, the Treasury yield curve, money supply and the average workweek.
Capital goods orders and manufacturers’ new orders fell.
