Leading Economic Indicators Positive, but Recovery Is No Sure Bet

By Jason Simpkins
Associate Editor

The Conference Board's index of leading economic indicators rose for the second straight month in April, but the National Association of Business Economists (NABE) isn't convinced the United States can skirt recession.

The Leading Economic Indicators index rose 0.1% in April, just as it had it March. It was the first back-to-back increase since October 2006. 

"The message on the economy is that activity is soft but not moving down sharply," Michael Moran, chief economist at Daiwa Securities America Inc. who correctly predicted the index's April gain, told Bloomberg News. "The economy is muddling along."

The news added to speculation on Wall Street that the housing slump and credit crunch will subside this year. The Dow Jones Industrial Average closed the day up 41.36 points, or .32%. It was trailed by the Standard & Poor's 500 Index and which was up slight .09%.

While the latest survey by the NABE corroborated that belief, it also reflected an unshakable pessimism for the greater U.S. economy, with 56% of those surveyed saying a recession is imminent if not already here. That's up from 46% in February.

"Although housing and credit markets will gradually loosen their grip, U.S. economic growth is expected to only slowly return to health," said Ellen Hughes-Cromwick, president of NABE and chief economist at Ford Motor Company (F).

Analysts anticipate employers will remain cautious in hiring, adding to a list of consumer woes that includes soaring food and energy costs.

According to the survey, unemployment is expected to climb to 5.3% this year and 5.6% next year. Those surveyed said consumer prices would rise 3.6% this year, before retreating in 2009.

Last Thursday, the Labor Department reported that the number of U.S. workers filing for initial jobless benefits increased slightly more than expected in the week ended May 10. First-time jobless claims rose to 371,000, up from 365,000 for the week prior. Economists surveyed by Reuters had forecast the number of new claims at 370,000.

That data was followed Friday by news that consumer sentiment was at a 28-year low. The U.S. consumer sentiment index, which is published by the University of Michigan and Reuters News Agency, fell to 59.5 in April, from 62.6 in March.

"The consumer is getting extremely grumpy," Brian Bethune, director of financial economics at Global Insight Inc., who had forecast a decline in the confidence index to 59.6, told Bloomberg News. "The economy is flirting with a recession. The only thing keeping it out is this huge amount of pump-priming going on," including aggressive interest-rate reductions by the U.S. Federal Reserve, the government's stimulus package and deep discounting by retailers.

U.S. consumer prices rose less than forecast in the month of April, rising 0.2% after a 0.3% jump in March. However, soared 0.9% for the month, the biggest upsurge since January 1990. And gas prices are continuing their march towards $4 a gallon, with the national average of a gallon of regular unleaded gas hitting $3.794, yesterday (Monday). 

The AAA national average shows gas prices up 9.2% from a month ago and up 19.4% from year-ago levels. Gas prices have now risen for 13 straight days.

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