Leading Indicators Rise at Slower Pace as Factory Orders, Building Permits Decline
The index of U.S. leading indicators rose at a slower pace in January, restrained by declines in building permits and factory orders that signal a slower pace of growth.
The Conference Board’s index, a measure of the outlook for the next three to six months, climbed 0.2% last month, after a revised 0.4% gain in December that was smaller than initially reported, the New York-based group said Feb. 19. The median forecast of 49 economists surveyed by Bloomberg News called for a 0.3% advance.
A slowdown in manufacturing, held back by a rising dollar and sluggish growth overseas, and an uneven housing recovery are restraining the world’s largest economy at the start of 2015. That’s bearing out Federal Reserve policy makers’ concerns and explains why many officials last month said they were willing to leave interest rates low for longer.
“The lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the U.S. economy,” Ataman Ozyildirim, an economist at the Conference Board said in a statement. Nonetheless, the index “suggests a positive short-term outlook in 2015.”
Estimates in the Bloomberg economist survey ranged from gains of 0.1% to 0.6%. The December reading was initially reported as a 0.5% increase.
Five of the 10 indicators in the Conference Board’s leading gauge contributed to the gain, driven by the spread between short- and long-term interest rate, rising consumer confidence and easing credit conditions.
A decline in the Institute for Supply Management’s factory new-orders index and a decrease in building permits reported by the Commerce Department, which are considered a proxy for future construction, were among the four measures that retreated.
Fed policy makers are concerned that struggling economies from Europe to Asia, the stronger dollar and the sluggish recovery in housing pose obstacles to a pickup in growth.
Many officials “indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” according to minutes of the Jan. 27-28 Federal Open Market Committee meeting released on Wednesday in Washington.
The Conference Board’s index of coincident indicators, a gauge of current economic activity, increased 0.2% in January for a second month. The National Bureau of Economic Research uses the index, which tracks payrolls, incomes, sales and production, to determine the beginning and end of U.S. recessions.
A gauge of lagging indicators climbed 0.3% in January for a third consecutive month.
