Rising leading index signals recovery gaining momentum

A measure of future economic activity in the United States continues to rise, a signal recovery is gaining momentum, albeit unevenly.

The Conference Board reported that its Leading Economic Index (LEI) jumped 1 percent in December to 112.4. The latest increase followed a 1.5 percent gain for the previous two months.

With increases in each of the last six months, the LEI has advanced 3.3 percent. That compares to a 2.4 percent gain in the previous six-month period.

“While the LEI points to an economic expansion that is gaining further traction, it’s components still suggest the expansion path may be uneven,” said Ataman Ozyildirim, an economist with the Conference Board, a business research and membership group based in New York.

Ken Goldstein, another economist with the Conference Board, put it this way: “The four-month rise suggests the economy now has some wind in its sails. However, it still faces some strong headwinds in the medium term. Overall economic activity is likely to continue to gain momentum in 2011.”

For December, six of 10 components of the LEI advanced, including building permits, consumer expectations, new orders for capital goods, stock prices and the spread between short- and long-term interest rates. Moreover, average weekly initial claims for unemployment benefits were down.

Meanwhile, new orders for consumer goods were down, as was vendor performance. Average weekly manufacturing hours and the money supply held steady.

The Coincident Economic Index (CEI), a measure of current conditions, rose two-tenths of a percent in December to 101.9. The CEI rose a combine three-tenths of a percent in November and October and seven-tenths of a percent over the previous six months.

By comparison, gross domestic product rose at an annual rate of 2.6 percent during the third quarter of 2010, up from 1.7 percent in the second quarter.

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

The Lagging Economic Index (LAG), a measure of past performance, rose three-tenths of a percent in December to 108.4. The LAG slipped a tenth in November and held steady in October.

For December, two of seven components of the LAG advanced: the price of services and business lending.

Retreating components included consumer credit and labor costs. In addition, the average duration of unemployment increased.

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