The index of U.S. leading indicators rose in July by the most in three months, showing the world’s largest economy will improve in the second half of 2013.
The Conference Board’s gauge of the outlook for the next three to six months increased 0.6% after no change the prior month, the New York-based group said today. The median forecast in a Bloomberg survey of economists called for a 0.5% advance.
The boost to household wealth from higher stock prices and a stronger housing market is helping sustain the consumer spending that accounts for about 70% of gross domestic product. More business investment in new equipment would provide an additional spark for an expansion the Federal Reserve projects will pick up the rest of the year.
“Consumers have been expanding their spending, but at a relatively modest pace,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “In the second half of the year, we hope to see GDP improve somewhat as government spending cuts stabilize. The recent improvement in new orders for business equipment bode well for the economy.”
Estimates of 42 economists in the Bloomberg survey ranged increases of 0.2% to 0.7%.
Another report today showed first-time claims for unemployment benefits over the past month declined to the lowest level in more than five years, indicating the job market continues to improve. The number of applications dropped to 330,500 a week on average, the least since November 2007, the Labor Department said. Compared with a week earlier, claims rose by 13,000 to 336,000.
Stocks rose, sending the Standard & Poor’s 500 Index rebounding for a six-week low, on better-than-estimated global manufacturing data. The S&P 500 advanced 0.7% to 1,653.5 at 10:23 a.m. in New York.
Eight of the 10 indicators in the leading index strengthened in July, led by cheaper borrowing costs, higher stocks and more building permits. Fewer jobless claims and gains in factory orders also propelled the leading index last month.
The improvement indicates “better economic and job growth in the second half of 2013,” Ken Goldstein, an economist at the Conference Board, said in a statement. “However, the biggest uncertainties remain the pace of business spending and the impact of slower global growth on U.S. exports.”
The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.2%, the sixth straight gain.
The coincident index tracks payrolls, incomes, sales and production, measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators decreased 0.2% in July.
Strength in the housing market is contributing to economic growth and bolstering sales at home-improvement retailers such as Lowe’s Cos. and Home Depot Inc. Both companies reported earnings this week that beat analysts’ estimates and raised their profit forecasts for 2013.
Higher home prices, which has boosted household net worth, is propelling demand for appliances and other big-ticket items that Americans were reluctant to buy in the housing downturn, Lowe’s Chief Executive Officer Robert Niblock said yesterday.
“Our second quarter sales performance exceeded our expectations, due in part to strong demand for appliances and recovery in our garden department,” Carol B. Tome, chief financial officer at Atlanta-based Home Depot, said on an Aug. 20 earnings call.
At the same time, consumers who have been spending on big- ticket goods such as automobiles and appliances may be cutting back elsewhere.
At Macy’s Inc., sales fell in the second quarter, the first decline since the fourth quarter of 2009, and purchases also cooled at Wal-Mart Stores Inc., while profit fell at Target Corp.
“We believe that much of our weakness is due to the health of the consumer,” Macy’s chief financial officer Karen M. Hoguet said on an Aug. 14 earnings call. “Consumers seem to be choosing to make purchases in non-department store categories such as cars, housing and home improvement.”
The Fed is gauging the strength of the economy as they debate dialing back record monetary stimulus. Policy makers considering reducing $85 billion in monthly asset purchases were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to taper this year if the expansion strengthens, with a few saying a reduction may be needed soon, minutes of their last meeting showed yesterday.
“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released yesterday in Washington.
“A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,” the minutes show. “Almost all participants confirmed that they were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year.”