Continued increase in leading economic indicators points to recovery

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The Leading Economic Indicator Index increased 1.0 percent in September, the sixth straight monthly increase and a sign that economic conditions will continue to improve in the near term, the Conference Board said.

Economists surveyed by Bloomberg had expected a 0.8 percent gain in the index, up from a revised 0.6 percent gain in August, originally reported as a 0.4 percent increase.

Eight out of 10 leading indicators increased in September. The interest rate spread between 10-year Treasury bonds and overnight federal funds was the largest positive contributor, demonstrating a healthy yield curve. The only two negative leading contributors were average weekly manufacturing hours and building permits.

“This is going to be a long, tough, slow recovery. The good news is, it’s begun,” said Ken Goldstein, Conference Board economist. He said Americans may not feel the recovery any time soon, but noted that natural gas prices have plummeted and winter heating bills won’t be as high in the Midwest.

Asha Bangalore, vice-president and economist at Northern Trust Company, agreed. “Once again, the index has provided valuable guidance about the course of the economy,” Bangalore wrote in a note Thursday. “This string of gains is a convincing indication that an economic recovery is underway.”

Bangalore noted that the index of leading indicators has moved up 1.8 percent on a quarterly basis from a year ago, the first such increase since the fourth quarter of 2006.

Economists surveyed by Bloomberg expect the third quarter GDP, to be released Oct. 29, to rise by 3 percent, which would be the first increase since the second quarter of 2008. GDP fell 0.7 percent in the second quarter and 6.4 percent in the first quarter of 2009.

The Coincident Economic Index remained unchanged in September, following small increases in the previous two months. Employment continues to fall, while industrial production has risen for three straight months, the Conference Board said.

September Index of Leading Economic Indicators

Positive leading indicators:
Interest rate spread
Index of consumer expectations
Average weekly initial claims for unemployment insurance (inverted)
Stock prices
Real money supply
Index of supplier deliveries (vendor performance)
Manufacturers’ new orders for nondefense capital goods
Manufacturers’ new orders for consumer goods and materials

Negative leading indicators:
Average weekly manufacturing hours
Building permits

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