>>Dec. 19 — A key forecasting gauge rose for a second straight month in November, a research group said Wednesday, adding weight to predictions that the struggling U.S. economy will begin growing again in the first half of 2002.
THE NEW YORK-BASED Conference Board reported its Index of Leading Economic Indicators rose 0.5 percent, the biggest one-month increase since May, and better than the 0.3 percent increase analysts had expected. Following a revised 0.1 percent increase in October, the index now stands at 109.7, exactly where it was in August, before the Sept. 11 terrorist attacks sent shock wave through financial markets and the economy.
“The recession is not getting more intense,” said Conference Board economist Michael Fort. “In fact, the rate of economic decline appears to be moderating.”
Stock prices generally rose after the report was issued, although analysts said professional investors pay little attention to the Leading Indicators because it is based on previously reported data that is already well known, including initial jobless claims, new orders for manufactured goods and stock prices themselves.
But that does not make it any less valid as a predictor of when the economy will hit bottom and begin rebounding, said Salomon Smith Barney economist Steven Wieting.
“The bottom line is that the leading indicators did a fantastic job of predicting the current downturn,” he said. “These indicators are pointing straight up.”
Actually, only six of the 10 indicators that make up the index rose in November, with a heavy emphasis on financial indicators including the S&P 500, the money supply and the yield curve — as measured by the spread between the interest rate for 10-year Treasury bonds and the overnight federal funds rate.
Other factors that helped were a decline in initial jobless claims after a spike in October, rising consumer confidence and an increase in the number of new building permits issued. Those indicators were offset by a decline in the average factory workweek, a decline in orders for both consumer goods and non-defense capital goods, and weaker vendor performance.
The U.S. economy entered its 10th postwar recession in March, a panel of economists declared Nov. 26. Past recessions have averaged about 11 months each.
Recession Duration Peak jobless rate
Nov. 1948 to Oct. 1949 11 months 7.9 percent in Oct. 1949
July 1953 to May 1954 10 months 6.1 percent in Sept. 1954
Aug. 1957 to April 1958 8 months 7.5 percent in July 1958
April 1960 to Feb. 1961 10 months 7.1 percent in May 1961
Dec. 1969 to Nov. 1970 11 months 6.1 percent in Aug. 1971
Nov. 1973 to March 1975 16 months 9 percent in May 1975
Jan. 1980 to July 1980 6 months 7.8 percent in July 1980
July 1981 to Nov. 1982 16 months 10.8 percent in December 1982
July 1990 to March 1991 8 months 7.8 percent in June 1992
March 2001 to ? ? 5.4 percent (as of Oct. 2001)
Source: National Bureau of Economic Research, Bureau of Labor Statistics
NO GUARANTEE OF RECOVERY
The index has risen in four of the past six months, suggesting that “the recession could be losing steam,” the Conference Board said in a statement.
But Fort, the board economist, was cautious, saying he wanted to see the index rise again next month.
“If we continue to see this increase it would certainly give us more confidence,” Fort said. “A lot of it depends on sales for December and on if we start to see an increase in the industrial production numbers.”
Wieting cautioned that even if the economy turns up early next year, he does not expect a return to robust growth until 2003.
“We’re digging our way out of a hole in early ’02,” he said. “It’s been 10 years since we had a recession, and people can only think of weak and strong. But things have to get less bad before they get better.”
In November, the National Bureau of Economic Research declared that the economy entered its 10th postwar recession in March, saying the Sept. 11 attacks ensured that the downturn would be deep enough and long enough to qualify as a negative business cycle.
RECESSION APPEARS MILD SO FAR
But many analysts say the current downturn, while broadly affecting most industries and regions, appears to be relatively mild compared with past recessions.
Markets at a glance
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
DOW 10,070.49 +0.72%
Dow Jones Transportation Index 2,644.66 -0.47%
Dow Jones Utilities Index 288.59 +3.18%
S&P 500 1,149.56 +0.58%
S&P 100 INDEX 588.72 +0.92%
S&P Midcap 400 INDEX 501.93 -0.18%
NASDAQ 1,982.89 -1.09%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Nasdaq 100 INDEX 1,628.69 -1.75%
Amex Composite Index 830.85 +0.62%
Russell 2000 Stock Index 482.07 -0.70%
Wilshire Smallcap Index 709.16 0.00%
S&P 500/BARRA GROWTH INDEX 602.00 +0.58%
S&P 500/BARRA VALUE INDEX 546.84 +0.58%
Amex Gold Bugs Index 64.14 -3.56%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Biotechnology Index 584.60 -1.21%
Computer Technology Index 798.82 -0.74%
Disk Drive Index 104.50 -3.73%
Natural Gas Index 179.32 +3.77%
Networking Index 316.00 -1.56%
North American Telecoms Index 814.45 -0.96%
Oil Index 501.70 +1.28%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Pharmaceutical Index 382.95 +0.81%
Securities Broker Dealer Index 516.20 +1.88%
Tobacco Index 403.29 +0.57%
Inter@ctive Week Internet Idx 149.55 -1.46%
Morg Stanley Commodities Index 242.51 -1.02%
Morgan Stanley Consumer Index 563.98 +0.89%
Morgan Stanley Cyclical Index 529.32 -0.45%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Morg Stan Hlthcare Payors Idx 429.57 -1.18%
Morg Stanley Technology Index 515.49 -1.59%
Semiconductor Sector Index 537.61 -5.20%
High Technology Index 698.91 -1.19%
Just this week the government reported that housing starts surged 8 percent in November to their highest level since January as builders bet that low mortgage rates would continue to lure prospective buyers.
“I don’t think the economy is in such bad shape,” said Sung Won Sohn, chief economist of Wells Fargo. “Consumers are in much better shape than people realize.”
He said that even with the unemployment rate at 5.7 percent, its highest rate in nearly six years, that still is well below the 6.8 percent average of the postwar era. And he projected that based on total decline of economic activity this is likely to be the third-mildest recession of the past 50 years.
Still, that is little comfort to the hundreds of thousands of people who have lost jobs in recent months, when payrolls have dropped more than a million names.
“At the bottom of a recession, things feel pretty lousy,” Sohn said.
The Index of Leading Indicators 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 coincident index, which measures current economic activity, slid 0.2 percent in November to 115.5. The index of lagging indicators, which reflects changes that have already occurred, fell 0.7 percent last month to 103.1.
The report coincided with the release of another earlier Wednesday showing that the nation’s trade deficit rocketed to $29.4 billion in October, the biggest one-month jump in more than eight years. But the figure was distorted by a surge in payments from overseas insurers in September after the attack on the World Trade Center in New York.
In apparent support of the Conference Board’s findings, Merrill Lynch separately issued a survey Wednesday of fund managers who have become increasingly convinced that the global economy is on the mend and will strengthen over the next 12 months. In the Merrill Lynch survey, which was conducted between Dec. 6 and 13, the fund managers projected that corporate earnings should grow next year as well, although only by 6 percent within the next 12 months. |
