Reports Reflect Economic Strength Index Of Future Activity Climbs, As Does Manufacturing Growth
In an unusual twist Tuesday, good news for the economy didn’t ruin Wall Street’s day.
An index of future economic activity continued its record-setting performance in July. A separate widely followed survey of executives who purchase supplies for industry said U.S. manufacturing growth accelerated in August for a third straight month and that the overall economy grew for a seventh month in a row.
The private reports reinforced the prevailing mood on Wall Street that Federal Reserve inflation fighters will push up rates, perhaps as early as their Sept. 24 meeting, unless the economy shows signs of slowing down.
But the figures included no surprises and investors shook off initial gloom and sent bond prices and bluechip stocks rising.
The Index of Leading Economic Indicators rose 0.2 percent to 103.1 in July, the Conference Board reported. The National Association of Purchasing Management’s index rose to 52.6 percent in August.
The leading index is designed to forecast economic activity six to nine months in advance. However, it is seen by economists as most useful in forecasting the economy’s direction rather than its pace. Three months movement in the same direction is generally considered indicative of a trend.
The previous high for the index was 102.9 set in June when it rose 0.5 percent. The index operates off a base of 100, set in 1987.
The purchasing managers group said growth in manufacturing was fueled by strength in factory production, new orders and new export orders. The survey from the private industry group also calmed some inflation fears, reporting prices paid by factories for raw materials fell for a third month in a row.
The leading index was first calculated in the late 1960s and was compiled by the Commerce Department until last year, when it was turned over to the private Conference Board in a cost-cutting move.
Of the leading index’s 11 components, six rose in July. The biggest gains came in prices of sensitive materials, average weekly first-time claims for state jobless benefits, manufacturers’ new orders of consumer goods and materials, and contracts and orders for plant and equipment.
The most significant declines came in the average factory workweek, stock prices and deliveries by suppliers, the business-sponsored research group reported.
The only surprise in the report was the prices of sensitive materials index, which factors 22 components, said Steven R. Ricchiuto, chief financial economist at Barclays de Zoete Wedd Securities Inc. He said its continued rise suggests some underlying pressure developing on inflation that might not be coming through in other reports.
Two sister indexes, the coincident and lagging indexes, were up in July. The index of coincident indicators gained 0.1 percent in July to 121.1 and the lagging indicators index rose 0.6 percent for the month to 103.0.