Indicators Signal Economy Nearing End Of Recession

Source : The Business Times, July 21, 2009

LATEST US DATA

(NEW YORK) The index of US leading indicators rose in June for a third consecutive month, reinforcing signs the economy may be emerging from the worst recession in five decades.

The Conference Board's gauge of the economic outlook for the next three to six months increased 0.7 per cent, more than forecast, after a revised 1.3 per cent gain in May, the New York-based research group said yesterday. It is the first time the index has climbed for three months in a row since 2004.

Smaller job losses, rising stock prices and stabilisation in homebuilding and manufacturing are evidence that government efforts to stem the financial crisis and lower borrowing costs may pay off. A jobless rate that is forecast to reach 10 per cent and falling home values are a reminder that any expansion will be muted as consumers rein in spending and boost savings.

'The outlook over the next few quarters is improving,' Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina, said before the report. 'We see the recession likely ending by the end of year but that is not without some months of turbulence.'

The Conference Board's index was forecast to rise 0.5 per cent, according to the median of 59 economists in a Bloomberg News survey.

Survey estimates ranged from a decline of 0.3 per cent to a gain of one per cent. Seven of the 10 indicators in yesterday's report added to the index while three indicators subtracted from it.

A growing divergence between long and short-term interest rates, rising stock prices, a longer factory workweek, increases in building permits and falling jobless claims contributed to the gain. Falling money supply, orders for capital goods and consumer expectations pulled down the index.

The biggest boost was provided by a widening spread between the 10-year Treasury note, where yields rose based on mounting speculation of an economic recovery, and the overnight fed funds rate.

Federal Reserve chairman Ben Bernanke is slated to deliver his semiannual economic report to Congress today. He's expected to outline his strategy for exiting the biggest monetary expansion in history in order to contain inflation.

Keeping a lid on prices would give the central bank leeway to maintain the overnight rate near zero for an extended period of time, economists said. -- Bloomberg