- The Washington Times - Monday, September 21, 2009


The index of U.S. leading economic indicators increased in August for the fifth straight month, providing still more evidence that the longest, deepest recession since the Great Depression is probably over.

The index of leading indicators jumped 0.6 percent in August, according to a report Monday from the Conference Board, a New York-based private economic research group. The index is designed to forecast economic activity three to six months in advance. The current trend represents the longest string of increases in the index since 2004.

The group also reported that its index of coincident economic indicators, which is designed to track the movement of the economy in real time, was unchanged in August following a 0.1 percent increase in July.

“The Leading Economic Index has risen for five consecutive months, and the coincident economic index has stopped falling,” said board economist Ken Goldstein. “Taken together, this suggests that the recession is bottoming out.”

Last week, Federal Reserve Chairman Ben S. Bernanke declared the recession “is very likely over.” The Fed’s policy-making committee convenes this week and is expected to maintain short-term interest rates at the historically low levels that have prevailed since December 2008, when the Fed lowered its overnight benchmark rate to between zero and 0.25 percent.

Five of the 10 leading indicators provided a boost to the index in August. The positive contributors, in order of their biggest impact, were longer supplier delivery times for manufacturers, a positive interest-rate yield curve (the 10-year Treasury rate was nearly 3.5 percentage points higher than the rock-bottom overnight rate), rising stock prices, an increase in building permits and a jump in the index of consumer expectations.

Three indicators — falling money supply adjusted for inflation, rising first-time claims for unemployment benefits and declining manufacturers’ new orders for non-defense capital goods (an indication of business investment) — had a negative impact on the leading index.

“These numbers are consistent with the view that after a very severe downturn, a recovery is very near,” Mr. Goldstein said. “But the intensity and pattern of that recovery [are] more uncertain.”

Since beginning its ascent in April, gains in the LEI components have become more widespread and the LEI’s six-month growth rate continued to accelerate last month.

“Viewed in isolation, this kind of performance would imply an explosive rebound and a traditional V-shaped recovery,” said Aaron Smith of Moody’s Economy.com.

However, the more likely scenario, Mr. Smith said, is growth will be kept in check by the need of households to rebuild their financial positions, which were decimated by the deep recession and collapse in home prices.

Most economists do not expect the recovery, which probably began this quarter, will initially be sufficiently robust to prevent the unemployment rate from rising. The U.S. jobless rate, which hit a 26-year high of 9.7 percent in August, is expected to top 10 percent before the end of the year, according to most forecasts.

“The jobless recovery has already started — we will see 3 percent-plus growth in the economy for the third quarter along with continued job losses,” Wells Fargo told its clients Friday.

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