ICS Magazine

Leading Economic Indicators tick upward for second month

December 19, 2001
The Index of Leading Economic Indicators rose 0.5 percent last month to 109.7 following a revised 0.1 percent increase in October and beating analysts' forecast by a 0.3 percent gain.

NEW YORK -- The Index of Leading Economic Indicators rose 0.5 percent last month to 109.7 following a revised 0.1 percent increase in October and beating analysts' forecast by a 0.3 percent gain.

The index, key gauge of U.S. economic activity, measures where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. A second consecutive increase suggests that the economic downturn may be over, according to the New York-based Conference Board (www.conference-board.org), a private watch group.

Conference Board economist Michael Fort said the figures indicate that the recession in not getting more intense, but instead the levels are where they were in August.

The improvement in the index in October and November indicated that the economic fallout from the Sept. 11 terrorist attacks in New York and Washington had faded, the Conference Board said.

Gains in the financial, housing and expectations components drove the index higher, Fort said. If the pattern continues, an economic recovery in the first half of next year is possible, he added.

According to the Conference Board:
1. Gains in the financial, housing and expectations components propelled the leading index up in November for a second consecutive month. Should this pattern in the leading index continue, an economic recovery in the first half of next year might be possible.
2. The coincident index continued to weaken as industrial production declined in 13 of the last 14 months while nonagricultural employees declined in six of the last eight months.
3. Compared to the coincident index's average decline of 3.3 percent in the previous six recessions, the current decline has been relatively shallow. To date, the coincident index has declined by only 1.4 percent from its peak of 117.1 in December 2000.

Fort said the index does not guarantee a recover, despite the two-month gains. He said more declines might be in store "in the near future" as the recession "continues its course."

The report coincided with the release of another report, which shows the nation's trade deficit shot to $29.4 billion in October, the biggest one-month jump in more than eight years.

The Conference Board said six of the 10 indicators that make up the leading index rose in November. The positive contributors were a decrease in average weekly initial claims for unemployment insurance, interest rate spread, stock prices, building permits, money supply and index of consumer expectation.

Vendor performance, average weekly manufacturing hours, manufacturers' new orders for consumer goods and materials and manufacturers' new orders for nondefense capital goods were the negative components in the index.