The index of U.S. leading indicators climbed in April, a rebound from March that suggests the world’s largest economy may be poised for further expansion.
The Conference Board’s gauge of the outlook for the next three to six months climbed 0.6% in April after falling a revised 0.2% in March that was steeper than previously reported, the New York-based group said today. The median forecast of economists surveyed by Bloomberg called for a 0.2% increase.
Advancing stock prices and a recovering housing market may be propping up household spending, which accounts for about 70% of the economy. Still, slowing in manufacturing, automatic federal budget cuts and higher payrolls taxes threaten economic growth.
“Fundamentals have improved,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Things like consumer balance sheets, corporate balance sheets, the housing sector, and certainly the improvement in the energy picture for the United States are all positive factors.”
Estimates of 45 economists in the Bloomberg survey ranged from no change to an increase of 0.7% for the leading index.
Seven of the 10 indicators in the leading index contributed to the increase, including a jump in building permits, a drop in the number of jobless claims and the widening interest-rate spread between the federal funds rate and 10-year Treasury notes.
“The biggest risk right now is the adverse impact of cuts in federal spending,” Ken Goldstein, an economist at the Conference Board, said in a statement today. “The biggest positive factor is the potential for improvement in the recovering housing and labor markets.”
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1% in April after rising a revised 0.2% in the prior month.
The coincident index tracks payrolls, incomes, sales and production, which are the same measures the National Bureau of Economic Research uses to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators also rose 0.1% after advancing a revised 0.2% in March. An improvement in the labor market has not continued so far this month.
Applications for unemployment insurance payments jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed yesterday.
Manufacturing is also struggling. The Federal Reserve Bank of Philadelphia said that its general economic index fell in May to minus 5.2 from 1.3 the prior month. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast called for 2.
A report earlier this week showed that manufacturing in the New York region unexpectedly declined to minus 1.4 this month from 3.1 in April.
Builders pulled back last month after housing starts reached an almost five-year high in March, yet a surge in permits signals residential construction will soon rebound. Building permits jumped 14.3% to a 1.02 million annualized rate in April, the highest level since June 2008.
Higher home prices have boosted household wealth and may help bolster spending. Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3% from a year ago.
Still, the economy is projected to grow at a 1.6% annual rate in the second quarter, down from a 2.5% annual rate in the first three months of the year, based on the median forecast in a Bloomberg economist survey from May 3 to May 8.
Part of the reason for the projected second-quarter slowdown is an increase in the levy used to finance Social Security, which returned to 6.2% from 4.2%. A worker earning $50,000 a year is taking home about $83 less a month as a result.
Those higher taxes are affecting corporations including Wal-Mart Stores Inc., the world’s largest retailer, which has cut prices on groceries and other necessities. Still, first- quarter sales at U.S. Wal-Mart stores open at least 12 months fell 1.4%, the first drop after six straight gains. Analysts estimated a 0.1% decline.
“Top line revenue was challenged by a number of issues,” William S. Simon, chief executive officer of Wal-Mart U.S., said in an earnings conference call yesterday. He cited “the 2% increase in payroll taxes, reduced inflation and some of the most unfavorable spring weather we’ve seen in recent years across much of the country impacted our business.”