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Leading indicators rise
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May 17, 2001: 2:26 p.m. ET
Economy shows strength; jobless claims unexpectedly continue retreat
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NEW YORK (CNNfn) - A key gauge meant to predict the U.S. economy's performance edged higher in April after falling in March, while fewer Americans filed for unemployment claims last week, according to reports issued Thursday that showed signs of a possible rebound in the world's largest economy.
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We can look forward to some kind of economic recovery, albeit a weak one.
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Sung Won Sohn
Chief economist, Wells Fargo & Co. |
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The Conference Board, a New York-based business research group, said its Index of Leading Indicators rose 0.1 percent in April after falling a revised 0.2 percent in March. The latest reading matched the average forecasts of analysts polled by Briefing.com.
The index, which looks about six months into the economy's future, increased for only the second time in the past seven months and avoided a string of three consecutive declines. Three straight declines is traditionally considered a sign the economy is headed into recession.
The board also said its "coincident" index, made up of indicators of current economic conditions, held steady in April after rising by 0.1 percent in February and March.
Dr. Sung Won Sohn, chief economist with Wells Fargo & Co, said strength in both indicators are positive signs for the health of the economy.
"Those two together, leading and coincident, tell us the economy is stabilizing," Sohn said. "We can look forward to some kind of economic recovery, albeit a weak one."
In another piece of good news, the Labor Department said new claims for state unemployment benefits fell to 380,000 last week from a revised 388,000 the prior week. Economists polled by Briefing.com expected claims to rise to 395,000.
Fed actions taking effect
The leading indicators with the biggest gains in April were a strong Treasury yield spread -- meaning 10-year U.S. Treasury securities had higher interest rates than federal funds futures -- as well as an increase in money available to consumers and businesses, and higher stock prices.
Conference Board economist Delos Smith warned CNNfn's Money Gang program that the overwhelming strength of the first two numbers masked the weakness of other data. (314K WAV) or (314K AIF)
Smith said "wild cards" such as energy prices, the stock market, capital spending and even the weather could conspire to bring the economy back down.
"I see robins and the grass coming up and all kinds of nice signs," Smith said. "But it has to be proven."
Treasury yields and higher money supply, the Conference Board said, were the result of aggressive interest-rate cutting by the Federal Reserve this year.
The Fed continued its campaign to increase money supply and keep the economy out of a recession Tuesday by cutting interest rates one-half percentage point, the fifth such cut in 2001.
A day after the cut, the Dow Jones industrial average surged, closing above 11,000 for the first time in eight months, as investors bet the economy and corporate earnings would turn around in the second half of 2001.
Encouraging signs for labor market
But unemployment, which has been rising lately, could temper that optimism and curb consumer spending, which accounts for two-thirds of economic activity.
That's why Thursday's new unemployment claims data are so encouraging. After hitting five-year highs in prior weeks, the number of new claims has dropped for two straight weeks to its lowest level since March 24, when claims measured 365,000.
Click here for the latest on layoffs
The four-week moving average of new claims, considered a better gauge of jobless trends, fell to 401,250 from a revised 403,500. Economists watch the four-week moving average more closely because it smoothes fluctuations in the weekly data.
Continued claims -- from workers who have already claimed at least a week of benefits -- edged lower to about 2.68 million in the week ended May 5, the latest data available, from a revised 2.71 million the prior week. That was seen as another sign of a possible recovery in the job market.
But the number of people remaining unemployed is 718,000 more than the same period in 2000, and the labor market is still far from the robust health it enjoyed before the economic slowdown.
"New claims during the survey week are broadly similar to where they have been for the last two months, when payrolls fell," said Steven Wood, chief economist with FinancialOxygen. "Continuing claims have been ratcheting steadily higher. Labor market weakness remains."
Hubbard: Inflation not a concern
Some economists have fretted that the Fed's interest-rate cuts will flood the economy with too much cash and lead to inflation. But chief White House economic adviser Glenn Hubbard told Reuters he didn't think the Fed's actions would have such an effect.
"Inflation pressures are quite modest in the United States. I don't think inflation will be a problem this year, or next year, even with the rate cuts," said Hubbard, who just last week became head of the U.S. Council of Economic Advisers.
In a separate report, the Fed said it surveyed several bank lending officers and found credit was tight, but was loosening a bit, another sign its cuts may be helping to increase the money supply. 50.9 percent of banks reported tightening credit for the month of April, down a bit from the 51.9 percent tightening credit in March.
-- from staff and wire reports 
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