U.S. Leading Indicator Index Fell More Than Forecast

The index of U.S. leading economic indicators fell more than forecast in December, highlighting the risk of recession.
TradingEconomics.com, Bloomberg 1/18/2008 8:01:42 AM

The Conference Board's gauge, which points to the direction of the economy over the next three to six months, fell 0.2 percent last month, a third straight decline, the New York-based research firm said today.

The collapse in home construction, less hiring and a slowdown in consumer spending may spell the end of the expansion that started in 2001. Federal Reserve policy makers, including Chairman Ben S. Bernanke, have signaled they will lower interest rates this month and the Bush administration will announce a stimulus plan later today to forestall a downturn.

Confidence among consumers unexpectedly rose this month, a separate report showed. The Reuters/University of Michigan preliminary index of consumer sentiment for January increased to 80.5, from a two-year low 75.5 in December.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in December for a second month. The index tracks payrolls, incomes, sales and production.

Combined with gross domestic product, those are the figures used by the seven-member committee within the National Bureau of Economic Research in Cambridge, Massachusetts, to determine when economic downturns start and end. Pending revisions, last month's rise in the coincident index signals a recession probably didn't start last month.

Over the last six months, the leading indicators index dropped at an annual pace of 1.6 percent, short of the approximate 4 percent to 4.5 percent drop Conference Board economists say signals recession.

The report bears out forecasts by most economists that the U.S. will be able to skirt recession. The world's largest economy is projected to grow at a 1.1 percent annual rate this quarter and pick up speed in the following three months, according to the median forecast of economists surveyed earlier this month.

Economists at Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley are among those in the minority predicting the U.S. is already in, or will soon tip into, recession.

The drop in the leading index was paced by declines in building permits, the factory workweek, orders for new equipment and consumer expectations for the next six months, along with rising jobless claims. Gains in stock prices and the money supply, along with slower supplier deliveries, helped to limit last month's decline.

The Standard and Poor's 500 has taken a turn for the worse this month. As of yesterday, the S&P average was down 5.1 percent from December's average.

Consumer spending, which accounts for more than two-thirds of the economy, started to cool last quarter, making the holiday shopping season the weakest in five years.

The Conference Board's gauge of lagging indicators increased 0.4 percent after rising 0.2 percent the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Seven of the 10 components of the leading economic indicators index are known before the report: initial jobless claims, consumer expectations, building permits, supplier deliveries, the yield curve, stock prices and factory hours.

The Conference Board estimates money supply adjusted for inflation, new orders for consumer goods and orders for non- defense capital goods.


U.S. Leading Indicator Index Fell More Than Forecast