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Leading Indicators Rise, Lifting Rebound Hopes

Conference Board's index jumps 1% in May, but another report shows manufacturing didn't gain as expected.

June 20, 2003|Daryl Strickland | Times Staff Writer

After months of uncertainty, a key indicator of economic expectations surged in May, raising hopes that the economy could be headed for a rebound, the Conference Board reported Thursday.

But another report showed a smaller-than-expected increase in manufacturing activity in the mid-Atlantic region.

And the government said the nation's trade deficit widened to a record level in the first quarter.

The Conference Board said its index of leading economic indicators jumped 1% in May, after a 0.1% rise in April.

The findings were bolstered by the Labor Department, which said that new claims for unemployment benefits fell last week by a seasonally adjusted pace of 13,000 to 421,000 claims, a five-week low.

"This tells us some positive developments are beginning to take shape," Ataman Ozyildirim, an economist at the Conference Board, said of his organization's index. "After two months of increases, there is some hope that economic activity might be picking up later in the year."

The index includes changes in stock prices, manufacturing activity and unemployment. In May, eight of the 10 elements of the index rose.

Still, given many employers' continued lack of confidence in hiring and investment, "It's still too early to tell" whether the U.S. economy has gained significant momentum, Ozyildirim said.

Some analysts were disappointed by the Federal Reserve Bank of Philadelphia's report Thursday of manufacturing activity in the mid-Atlantic area.

Though the bank's index for June rose to 4.0 from negative 4.8 in May -- indicating the first month of increased production since February -- some economists hoped to see a bigger jump to confirm a strong showing reported earlier in the week for an index of manufacturing activity in New York state.

Analysts also warned that it was too early to say that the latest jobless claims data indicated a turn in the labor market.

"While this is an encouraging development, the latest reading is still high by historical standards, and the pace of unemployment insurance applications will need to decline further in order to signal a stabilization in labor market conditions," Jade Zelnik, economist at RBS Greenwich Capital, said in a report.

Separately, the government said the current account gap, the broadest measure of the nation's trade deficit because it includes investment flows as well as goods and services, totaled a record $136.1 billion in the first quarter, up 6% from the fourth quarter.

The increase was below expectations, but was a reminder of the nation's dependence on foreign capital, analysts said.

The deficit rose in part because of higher prices for imported oil in the quarter, the Commerce Department said.

Reuters contributed to this report.

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