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Published: Thursday, 11/18/2010

Economic index shows slight rise in October

NEW YORK - A gauge of future economic activity grew in October after a summer lull, suggesting the U.S. economy will slowly start strengthening early next year.

Unemployment is likely to stay high in 2011, experts said.

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 "seems to be predicting a near-term acceleration in growth," said Ian Shepherdson, chief U.S. economist of High Frequency Economics.

The index had risen 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 the housing market struggled, a debt crisis hit Europe, and hiring was weak.

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."

While the economy may be improving after its summer slowdown, growth remains considerably weaker than it was at the end of 2009 and earlier this year.

The economy grew at a 2 percent pace in the July-September quarter after increasing 1.7 percent from April through June.

The leading indicators are designed to predict if the economy will grow or shrink based on measurements of current conditions. The Conference Board analyzes data, most of which have 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 the 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.

Separately, a report released Thursday by University of Michigan economists said the nation's economic recovery will remain sluggish next year and won't really accelerate until 2012.

"Employment is expected to increase in every quarter of the forecast period," but the increases will be small enough that the number of jobs will stay below their 2008 peak through the end of 2012, economist Joan Crary said.

After recording a loss of 700,000 jobs this year, the country should add 1.2 million jobs in 2011 and 2 million in 2012, dropping the unemployment rate to 9.3 percent by the end of that period, according to the forecast. The nation lost 8 million jobs between late 2007 and late 2009 and has a long way to go to recover those losses.



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