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Leading Indicators Increase in April

An economist warns that the continued loss of jobs threatens to undermine consumer spending.

May 20, 2003|From Bloomberg News

The index of leading U.S. economic indicators rose in April for the first time this year. The 0.1% increase suggests the economy will be slow to strengthen after the war with Iraq, economists said Monday.

The rise in the Conference Board's gauge of how the economy will perform over the next three to six months followed a 0.2% decline in March and a 0.5% drop in February.

Consumer expectations reached the highest in four months and stock prices rose in April when it became clear the fighting in Iraq would end, contributing to the rise in the index. The gain was tempered by a drop in orders for business equipment and an increase in jobless benefit claims.

"While the economy is still growing and not losing momentum, growth is very slow and will be that way for at least a few more months," said Ken Goldstein, an economist at the New York-based group.

Economists had projected the 0.1% increase in the leading index, based on the median of 54 forecasts.

Half of the 10 indicators the Conference Board uses to derive the index contributed to the rise and four made negative contributions. One, new orders for consumer goods, had no effect on the April change.

In addition to rising consumer expectations and stock prices, increases in the money supply, building permits and a larger spread in the yield between the Treasury's 10-year note and the overnight bank lending rate accounted for the increase. The widening of the spread, or yield curve, signaled investors became more optimistic last month that economic growth would accelerate, pushing up the yield on the 10-year note.

The improvement in these financial indicators "presage an improving economy," said Peter Kretzmer, an economist at Banc of America Securities in New York. "But the improvement may take more time than first expected."

Faster delivery times, the drop in the factory workweek, a drop in orders for business equipment and an increase in jobless benefit claims accounted for the index's decline.

"It is these miserable employment data -- from higher jobless claims to the contracting workweek -- that concern us most about the near-term outlook," said Joseph Abate, a senior economist at Lehman Bros. in New York. The loss of jobs threatens to undermine consumer spending, which accounts for 70% of the economy, he said.

The Conference Board's index of coincident indicators, a gauge of current economic activity, fell 0.1% in April after no change the previous month. The index tracks payrolls, incomes, sales and production.

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