US Economy is expanding after Q1 slowdown


The six-year expansion, which slowed to an annual pace of 0.6 percent last quarter, is gaining new life as companies increase investment. Economists are raising forecasts and predict growth this quarter will exceed 3 percent.

The Conference Board's index of leading indicators, a gauge of the economy's direction, rose 0.3 percent in May after a 0.3 percent drop the prior month. The Philadelphia Federal Reserve Bank's factory index jumped to the highest in more than two years in June.

``The winter blahs for the economy seem to have receded,'' said Neal Soss, chief economist at Credit Suisse Group in New York, who correctly forecast the gain in the leading indicators. ``One of the most reassuring features of the economy has been job growth, and we expect that to persist.''
The Philadelphia Fed's general economic index jumped to 18 this month, more than forecast, from 4.2 the prior month, the bank said today. The index averaged 8.1 last year. Economists projected a gain to 7, according to the median forecast of analysts surveyed by Bloomberg News.
``Manufacturing is solid,'' said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina. ``The second quarter is going to post some fairly strong growth numbers.''
Roach had the highest forecast, 15, among economists in the Bloomberg survey.

Stocks Rise

U.S. stocks rose after the report showed a manufacturing rebound and concern eased over losses in the mortgage bond market. The S&P 500 Index closed up 9.4 points, or 0.6 percent, at 1522.19 in New York. The Dow Jones Industrial Average increased 56.4 points, or 0.4 percent, to 13,545.84.
Analysts anticipated the leading index would rise 0.2 percent after an initially reported 0.5 percent drop in April.
A separate report from the Labor Department today showed more people filed first-time claims for unemployment benefits last week.
Initial jobless claims rose by 10,000, a third consecutive increase, to 324,000 in the week ended June 16. The four-week average, a less volatile measure, rose to 314,500 from 312,000.
``There isn't a lot of stress in the labor market, but there is less hiring going on,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York. ``We are looking for more of the same -- modest growth and possibly a modestly rising unemployment rate.''

Impact on Index

Five of the 10 indicators in today's report had a positive effect on the index, led by the drop in jobless claims and the rise in stock prices.
The rise in the Standard & Poor's 500 index added 0.12 percentage point, the Conference Board said. The S&P index rose 3.3 percent in May on its way to a record this month. The index has since retreated.
Among other indicators having a positive effect, building permits added 0.08 percentage point. Permits rose to an annual rate of 1.501 million in May, after falling to the lowest level in almost a decade in April. Monthly permits have averaged 1.527 million at an annual rate so far this year.
Consumer expectations added 0.05 percentage point. Gains in jobs and stocks lifted the Reuters/University of Michigan index of consumer sentiment last month. Retail sales last month rose by the most in more than a year, according to a government report on June 13.
Growth in jobs and wages is one reason economists are more optimistic. Claims for jobless benefits averaged 304,000 last month, down from 318,000 in April. The U.S. unemployment rate was at 4.5 percent last month.

Fed Assessment
The Fed said the economy picked up in three of its 12 districts since mid-April, with a majority showing a ``modest or moderate'' pace of growth as more workers found jobs.
``Hiring activity picked up in late April through May, especially for workers with specialized skills,'' the Fed said this month in its regional survey known as the beige book.
Seven of the 10 economic indicators that make up the index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory...


Bloomberg
6/21/2007 2:06:43 PM