Leading Economic Index May Show U.S. Recession Is Close to Over
The index of U.S. leading economic indicators probably climbed in July for a fourth consecutive month, another sign the worst recession in seven decades is almost over, economists said before a report today.
The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.7 percent for a second month, according to the median forecast of 52 economists surveyed by Bloomberg News. Other reports may show first-time jobless claims fell and manufacturing in the Philadelphia region contracted at a slower pace.
Fewer job losses, rising stock prices and a renewal of factory output all indicate government efforts to stem the financial crisis and revive the economy are paying off. Even so, a jobless rate forecast to reach 10 percent and falling home values are a reminder that any expansion will be muted as consumers rein in spending and boost savings.
“Signs abound that the deepest recession since the Great Depression is nearing an end,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “The worst is clearly over, but there are still a number of hurdles to jump before a self-sustaining recovery takes hold.”
The New York-based Conference Board’s index is due at 10 a.m. Survey estimates ranged from gains of 0.1 percent to 1 percent. An increase would mark the first time the index has climbed for four straight months since 2004.
Jobless Claims
Five of the 10 indicators in today’s report probably added to the index while two subtracted from it and three were little changed, according to Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A drop in jobless claims, a positive spread between long- and short-term interest rates, a longer factory workweek, faster supplier deliveries and stock prices contributed to the gain, Englund predicted. Decreases in consumer expectations and the money supply limited the gain, he said.
New applications for unemployment benefits fell to an average of 559,000 in July from 616,000 in June. The Labor Department will report at 8:30 a.m. in Washington that claims dropped to 550,000 last week from 558,000 the week before, according to economists surveyed by Bloomberg.
The factory workweek rose to 39.8 hours in July, the highest since January, from 39.5 in June, the Labor Department said Aug. 7. Automotive plants are boosting output in response to signs that demand is recovering as they benefit from government incentives of up to $4,500 for consumers who trade in gas guzzlers for fuel-efficient vehicles.
Auto Industry
General Motors Co cheap car insurance. this week called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosts second-half production, partly in response to demand from the Obama administration’s “cash for clunkers” program. Ford Motor Co. last week said it is boosting factory output by 26 percent in the second half of the year to meet rising demand created by the trade-in program.
Separately, the Federal Reserve Bank of Philadelphia may say at 10 a.m. that its factory gauge rose to minus 2 this month from minus 7.5 in July, according to the survey, signaling that the industry shrank at a slower pace.
A 1 percent gain in the average level of the Standard & Poor’s 500 Index in July from the prior month contributed to the leading index. The S&P 500 has soared 47 percent since March 9 — when it reached its lowest level in more than 12 years — as data signaled the economy may be turning around.
At the same time, consumer expectations for the next six months fell in July and continued falling this month, according to the Reuters/University of Michigan survey of sentiment released last week.
Building Permits
Building permits — a sign of future construction — unexpectedly fell 1.8 percent in July, Commerce Department figures showed, a reminder that any recovery in the housing market will be choppy.
Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.
The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
Economists surveyed by Bloomberg this month said the economy will grow at an average 2.1 percent pace in the second half of this year after contracting over the previous 12 months. The anticipated expansion won’t be enough to prevent the unemployment rate from reaching 10 percent for the first time since 1983, the survey also showed.
The recession may already be over, according to Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York. A July gain in industrial production, the first in nine months, and the likelihood that output will keep growing because of depleted inventories is “the best” sign the contraction is over, McKelvey wrote in an e-mail to clients on Aug. 18.
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