Ahead of the Bell: Leading economic indicators

AP News
Posted: Nov 19, 2009 7:25 AM

Analysts expect a private forecast of U.S. economic activity rose for the seventh straight month in October, a sign the recovery will continue next year although probably at a plodding pace.

The Conference Board's index of leading economic indicators likely rose 0.5 percent last month, according to Wall Street economists surveyed by Thomson Reuters. The index, which is meant to project economic activity in the next three to six months, climbed 1 percent in September.

The Conference Board forecasts economic activity by measuring current jobless aid claims, stock prices, consumer expectations, building permits for private homes, the money supply and other data.

The October report is scheduled for release Thursday at 10 a.m. EST.

The Conference Board said the indicators' 5.7 growth rate in the six months through September was the strongest since 1983. But joblessness continues to rise as the unemployment rate in October hit a 26-year high of 10.2 percent.

Higher unemployment means consumers are unlikely to spend as much. While retail sales rose 1.4 percent in October, that was mostly due to auto purchases, according to government data released earlier this week. Outside of autos, spending inched up 0.2 percent _ the weakest reading since July.

The leading indicators may help market-watchers predict whether the economy will continue to grow as fast as it did in the third quarter. In the July-September period, the government initially said the economy grew at a 3.5 percent annual rate, ending a record of four straight quarters of decline.

Many economists worry that growth in the gross domestic product will slow as support from government stimulus programs fades and that the third-quarter reading will be revised lower next week.

While auto sales grew last month from a dismal September, construction of new homes sagged in October as builders waited to see if a tax credit for homebuyers would be extended.

Congress earlier this month did extend that tax credit, for up to $8,000, until April.

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Some also argue that the government's extraordinary measures meant to prompt lending are skewing the forecast, meaning the indicators' growth prediction isn't as strong as it seems.

And layoffs continued this week. Hartford, Conn.-based Health insurer Aetna Inc. said it will cut 625 jobs, or nearly 2 percent of its staff, and will make a similar job cuts in the first quarter of 2010 due to the lagging economy and the potential impact of health care reform.

Elsewhere, cell phone handset maker Sony Ericsson said it was moving its North American headquarters to Atlanta from Research Triangle Park, N.C. and closing a half-dozen sites worldwide. The closures are part of a plan to cut 2,000 jobs, or 20 percent of its global work force.

Several state governments also announced layoffs, including Pennsylvania, Indiana and Maryland.