Leading Index Points To Economic Pickup In 2011

November 18, 2010

A gauge of future economic activity grew in October after a summer lull, suggesting the U.S. economy may slowly start strengthening early next year.
The Conference Board, a private research group, said its index of leading economic indicators increased 0.5 percent last month. That matches a revised September reading of 0.5 percent. The September number had initially been reported as up 0.3 percent.
The latest increases are the fastest since May.
The index had grown steeply since April 2009 on the strength of the stock market, record-low interest rates and a rebound in manufacturing. But the rate of expansion tapered off this past summer as U.S. economic growth slowed.
The pickup in the index this autumn suggests that "change may be around the corner" for the sluggish economy, said Conference Board economist Ken Goldstein. "Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring."
The index is designed to predict if the economy will grow or shrink based on measurements of current conditions. Conference Board analyzes data, most of which has already been released, on real estate, manufacturing, employment, consumer confidence and financial markets. The Conference Board also includes its own estimates about manufacturers' new orders and the country's money supply.
Six of the 10 indicators Conference Board tracks improved in October, led by financial conditions: stock prices rose, the amount of money in the financial system increased, and the difference between 10-year interest rates and the overnight interest rate that the Federal Reserve has kept at a record low near zero. A wide gap between the two rates has historically suggested that investors expect economic activity to pick up.
The Fed earlier this month announced a $600 billion bond-buying program intended to drive interest rates lower, supporting the economy. Lower rates can encourage consumers to borrow and spend more.