Leading Economic Indicators Index in U.S. Unexpectedly Falls

By Jeanna Smialek
Bloomberg.com

The index of U.S. leading economic indicators unexpectedly declined in March for the first time in seven months, a sign the world’s largest economy will cool.

The Conference Board’s gauge of the outlook for the next three to six months fell 0.1 percent in March after climbing 0.5 percent in the prior two months, the New York-based group said today. The median forecast of economists surveyed by Bloomberg called for a 0.1 percent increase.

The figures underscore an economy that hit a rough patch at the end of the first quarter as manufacturing eased and higher payrolls taxes began to bite. At the same time, advancing stock prices this year and lower borrowing costs will help keep household spending, which accounts for about 70 percent of the economy, from faltering.

“It’s lackluster-to-moderate growth in the near-term,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who correctly projected the drop in the LEI. The tax increases and federal budget cuts are a drag, he said. The economy is “not quite as strong as we’d like to see.”

Estimates of 48 economists in the Bloomberg survey ranged from a decline of 0.4 percent to an increase of 0.6 percent.

Philadelphia Manufacturing

The Federal Reserve Bank of Philadelphia said today that its factory index declined in April to 1.3 from 2 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 3.

Stocks fell after earnings from UnitedHealth Group Inc. and EBay Inc. disappointed investors. The Standard & Poor’s 500 Index decreased 0.1 percent to 1,550.35 at 10:53 a.m. in New York.

Another report showed little change in the number of Americans filing for unemployment benefits. First-time jobless claims climbed by 4,000 to 352,000 in the week ended April 13, the Labor Department said.

“Businesses at least need the workers they have and probably could use some more,” said Tom Simons, an economist at Jefferies LLC in New York, who projected claims would rise to 350,000. “Claims will probably stay in this range for some time.”

Five of the 10 indicators in the leading index contributed to the March decrease, including a decline in applications for home construction, fewer factory orders and a drop in consumer expectations. Building permits in March fell 3.9 percent to a four-month low 902,000 annualized rate, the Commerce Department said this week.

‘Lost Steam’

“Data for March reflect an economy that has lost some steam,” Ken Goldstein, an economist at the Conference Board, said in a statement today. “The biggest challenge remains weak demand, due to nervous consumer sentiment and slow income growth.”

The Conference Board’s index of coincident indicators, a gauge of current economic activity, fell 0.1 percent in March after rising 0.5 percent in the prior month.

The coincident index tracks payrolls, incomes, sales and production, which are the same measures tracked by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

The gauge of lagging indicators advanced 0.3 percent after no change in February.

Siemens Projection

Siemens AG (SIE), Europe’s biggest engineering company, made 21.3 percent of its revenue from the U.S. in fiscal year 2012 and is among companies that anticipate further growth in the economy.

“A manufacturing renaissance is what is talk of town in the U.S.,” Siegfried Russwurm, head of Siemens’ industry division, said in an April 11 industry teleconference. “In the long run, we see a good business climate there, although currently it is a little bit bumpy.”

The economy is projected to grow at a 1.5 percent annual rate in the second quarter after an estimated 3 percent pace in the first three months of the year, according to the median forecast in a Bloomberg survey of economists from April 5 to April 9.

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 percent from 4.2 percent. A worker earning $50,000 a year is taking home about $83 less a month because of the higher tax.

Beige Book

Fed policy makers yesterday said the U.S. expansion remained “moderate.” Household spending, they said in the Beige Book business survey, “grew modestly” as some sales were restrained by the tax increase and higher fuel costs.

At the same time, stocks climbed to all-time highs this month. Through yesterday, the S&P 500 gained 8.8 percent this year.

Higher home prices have also boosted household wealth. Property values rose 10.2 percent in the 12 months through February, the biggest gain in almost seven years, according to Irvine, California-based CoreLogic Inc.

To contact the reporter on this story: Jeanna Smialek in Washington at [email protected]
To contact the editor responsible for this story: Chris Wellisz at [email protected]

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