Conference Board’s LEI Shows Economy Moving Up at Snail’s Pace

Slightly lower jobless claims, mildly improved Philly Fed also signal slow growth

The ups and downs of the U.S. economy’s business cycle kept moving in a positive direction for the third month in a row, but growth remains slow, the Conference Board reported Thursday.

According to the board’s leading economic index (LEI) for September, the 10 components of the index showed an overall 0.3% rise in September to a level of 110.4 following a 0.1% increase in August and a 0.2% increase in July.

“More than a year after the recession officially ended, the economy is slow and has no forward momentum. The LEI suggests little change in economic conditions through the holidays or the early months of 2011,” said Ken Goldstein, economist at the Conference Board, in a news release.

LEI’s Most Positive Components: Interest Rates and Jobless Claims

Still, the economy’s upward movement remains sluggish.

“The LEI remains on a general upward trend, but it is growing at its slowest pace since the middle of 2009,” said Conference Board economist Ataman Ozyildirim in the release. “There isn’t any indication of a relapse into another downturn through the end of the year.”

Since early this year, the LEI has circled around a tight range from a low of 109.5 in spring to September’s high of 110.4. The index’s base level of 100 was set in 2004.

Five of the 10 indicators that make up the LEI increased in September. The positive contributors, beginning with the largest contributor, were the interest rate spread, average weekly initial claims for unemployment insurance, real

money supply, stock prices, and manufacturers’ new orders for consumer goods and materials.

“The biggest positive contributor to the September leading index was interest rate spread, reflecting the slide in 10-year Treasury note yield through August and September toward 2.50%,” wrote the economists at PNC Financial Services, Pittsburgh, in an analyst note.

September’s LEI was consistent with the PNC economists’ expectation of slightly firmer real GDP growth in fourth-quarter 2010, of about 2.5% annualized, “leading to more economic momentum in 2011,” they noted.

The negative contributors, beginning with the largest contributor, were supplier deliveries, building permits, and consumer expectations. Average weekly manufacturing hours and manufacturers’ new orders for nondefense capital goods held steady in September.

Jobless Claims Fell, Philly Fed Improved

Also on Thursday, the U.S. Labor Department reported that weekly jobless claims for the week ended Oct. 16 fell by 23,000 to a total of 452,000. The less volatile four-week moving average of new claims, which paints a more accurate picture of employment trends, also dropped, by 4,250, to stand at 458,000.

Another economic indicator released Thursday, the Federal Reserve Bank of Philadelphia’s October business outlook survey, showed marginal improvement in the broader survey, but the new orders index continued to suggest weak demand for manufactured goods.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased to 1.0 in October from a reading of –0.7 in September. The index had been negative for two consecutive months. Indexes for new orders and shipments continued to indicate weakness this month: the new orders index increased 3 points but remained negative for the fourth consecutive month.

More firms reported increases in input prices this month, although the prices of firms’ manufactured goods continued to decline. The survey’s broad indicators of future activity suggest that optimism among the region’s manufacturing executives improved notably this month.

Read about the Conference Board’s August LEI at AdvisorOne.com.

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