Rising leading index forecasts expanding economy

A monthly measure of future economic performance in the United States continues to rise, suggesting the recovery is gaining traction.

The Conference Board reported that its Leading Economic Index (LEI) jumped eight-tenths of a percent to 113.4 in February. The latest gain follows a combined increase of 1.1 percent over the previous two month. With the increase in February, the LEI is about 16 percent above its most recent trough in March 2009 and remains at an all-time historical high.

“With February’s large gain, the U.S. LEI returned to the strengthening upward trend that begin last September,” said Ataman Ozyildirim, an economist with the Conference Board, a business research and membership group. “The LEI is pointing to an economic expansion that should gain more momentum in the coming months. In February, improvements in labor markets, financial components and consumer expectations more than offset falling housing permits.”

Ken Goldstein, another economist at the Conference Board, said the latest data signal an economy that should gain strength through the summer, but faces headwinds nonetheless. “One headwind is the sharp rise in food and energy prices. Still, the way inflation will move is unclear given the degree of slack in the overall economy and especially in the labor market.”

For February, eight of 10 indicators of the LEI advanced: consumer expectations, interest rate spread, new orders for consumer goods and materials, manufacturing hours, real money supply, stock prices and vendor performance. Moreover, average weekly claims for unemployment insurance retreated.

Building permits and new orders for nondefense capital goods were down.

The Conference Board Coincident Economic Index (CEI), a measure of current conditions, rose two-tenths of a percent to 102.5 in February. The CEI rose a total of six-tenth of a percent in January and December.

For February, all four indicators of the CEI advanced: payrolls, personal income, production and sales.

The Conference Board Lagging Economic Index (LAG), a measure of past performance, increased two-tenths of a percent to 108 in February. The LAG edged down a total of a tenth of a percent in January and December.

For February, three of seven indicators of the LAG rose: business lending, labor costs and the price of services.

Consumer credit decreased, while the average duration of unemployment increased. Inventories and the average prime interest rate held steady.