Leading Indicator Index Improves for First Time in Six Months

MBA (4/18/2008 ) Velz, Orawin
The Conference Board Index of Leading Indicators, a gauge of future business activity three to six months ahead, rose 0.1 percent in March, the first increase in six months.
Half of the 10 components of the leading economic indicators increased during the month. The largest positive contribution was money supply, while the largest negative contribution came from average weekly initial claims for unemployment insurance. Over the six months ending in March, the leading indicator index fell 1.6 percent. According to The Conference Board, the economy will face a tough environment of weak or no growth in the near term.

In yesterday’s report of the weekly initial unemployment claims, claims increased by 17,000 to 372,000 for the week ending April 12. The four-week moving average declined slightly to 376,000, still lower than the 400,000 initial claims seen during the 2001 recession. Initial claims data over the past four weeks, which coincide with the survey period in the Establishment Survey from the Bureau of the Labor Statistics, showed a much smaller increase than that for the prior month. This suggests a more moderate decline in payroll in April than the decline of 80,000 jobs in March.

Continuing claims, which measure the total number of workers drawing unemployment benefits and gauge the pace of hiring rather than layoffs, increased by 29,750 to 2.98 million for the week ending April 5. This is the highest level since mid-June 2004. Recent trends in continuing claims suggest that businesses have been reluctant to hire, consistent with widespread weakness in the labor market.

A separate report from the Philadelphia Federal Reserve showed that the area’s manufacturing sector continued to struggle, as activity declined again in April. The general business index fell to negative 24.9 from negative 17.4 in March. (Readings below zero indicate contraction in the Fed district’s manufacturing activity.) Manufacturing in the Philadelphia region has now contracted for the fifth consecutive month, with the index reaching the lowest reading since February 2001.

The Philly Fed survey is the second regional Fed manufacturing survey for March. The results from the two regional Fed surveys are conflicting. On Wednesday, the New York Fed released the Empire State Manufacturing Survey, showing the jump in the index to 0.6 in April from negative 22.2 in March. The index had been negative in February and March.

According to the Beige Book—a collection of anecdotal information about business conditions in a variety of sectors from 12 Federal Reserve districts—released on Wednesday, manufacturing conditions across the country were mixed. Four bank districts, including New York and Philadelphia, reported weakening activity during March and early April.