Leading indicators rise in January, fourth consecutive gain

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Posted 12:00PM on Thursday, February 21, 2002

NEW YORK - An important gauge of U.S. economic activity rose in January for the fourth consecutive month, suggesting the nation's economic turnaround is on solid footing and could be stronger than expected. The New York-based Conference Board said Thursday that its Index of Leading Economic Indicators increased 0.6 percent in January to 112.2 following a revised 1.3 rise in December. The reading met analysts' expectations. "Given this string of strong increases, the cumulative rise in the index in over the past six months ... suggests gathering economic momentum," said the board's economist, Ken Goldstein. "The strong signal from the indicators is that the recession is ending and that the recovery could be more vigorous than earlier anticipated." The index 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. The Conference Board, a business-funded research group, said three increases in the index generally signal that the economy will expand in the next three to six months. The economy has been contracting since last March. Goldstein attributed to the renewed economic energy to the Federal Reserve's aggressive interest rate cutting campaign in the past year, a significant fall in energy prices and the reemergence of consumer optimism, which helped boost demand. Increases in federal spending and federal tax cuts also were partially responsible for the steady improvement in the index in the past four months, said Hugh Johnson, chief investment officer at First Albany Corp. "It's a clear signal that the economy has stabilized," he said. Earlier Thursday, the Commerce Department reported the U.S. trade deficit in 2001 showed the first improvement in six years, as the recession forced Americans to pull back spending on foreign goods. Despite the gain, the $346.3 billion imbalance was the second-largest deficit in history. In another report, the Labor Department said the number of Americans filing first-time claims for unemployment benefits rose by 10,000 to 383,000 last week. On Wall Street, the markets were mixed. The Dow Jones industrial average rose 24 points at 9,965 and the Nasdaq composite index dropped 27 points to 1,749. In January, six of the 10 indicators that make up the leading index increased. The four negative contributors were average weekly manufacturing hours, stock prices, manufacturers' new orders for nondefense capital goods and manufacturers' new orders for consumer goods and materials. The index of coincident indicators, which measures current economic activity, edged up to 115.4 in January following a revised 0.1 percent gain in December. The index of lagging indicators decreased 0.2 percent in January to 102.6.