Rising leading index signals economic expansion in U.S.

A monthly indicator of future economic performance in the United States continues to rise, signaling expansion in coming months.

The Conference Board reported that its Leading Economic Index (LEI) edged up a tenth of a percent to 112.3 in January. The latest gain follows a combined increase of 1.9 percent in the previous two months.

“With January’s slight increase following two large gains, the U.S. LEI is still pointing to economic expansion in the coming months,” said Ataman Ozyildirim, an economist with the Conference Board, a business research and membership group.

“Falling housing permits and weakening labor market indicators were barely offset by the continued positive contributions of the financial components,” Ozyildirim said. “The LEI remains on a rising trend, with its growth rate picking up in recent months. However, current economic conditions, as measured by the Coincident Economic Index, while improving slowly, remain weak.”

Ken Goldstein, another economist at the Conference Board, said the latest data suggests economy recovery has gained momentum. “The cumulative change in the U.S. LEI over the last six months is a sharp 3 percent, signaling continued expansion.”

For January, six of 10 indicators of the LEI advanced: consumer expectations, interest rate spread, stock prices, vendor performance and new orders for capital and consumer goods and materials.

Building permits, manufacturing hours and the real money supply retreated. Average weekly claims for unemployment benefits rose.
The Conference Board CEI edged up a tenth of a percent in January to 102.1. The index rose a total of half of a percent the previous two months.

By comparison, gross domestic product grew at an annual rate of 3.2 percent during the fourth quarter of 2010, an increase from 2.6 percent in the third quarter.

For January, three of four indicators of the CEI advanced: payrolls, sales and personal income. Production was down.

The Lagging Economic Index (LAG), a measure of past economic performance, slipped a tenth of a percent to 107.9. The index slipped a total of a tenth of a percent the previous two months.

For January, two of seven indicators advanced: labor costs and the price of services.

Three indicators retreated: business lending and consumer credit. Moreover, the average duration of unemployment increased.

Inventories and the average prime interest rate charged by banks held steady.