Leading indicators reverse decline

A gauge of future economic activity that had declined for five-straight months reversed course in November, signaling that the nation’s financial engine is still gaining power even though the growth rate has slowed.

The Conference Board, a private research group, said Monday that its Index of Leading Economic Indicators rose 0.2 percent in November — slightly better than economists had been expecting — following revised declines of 0.4 percent in October and 0.2 percent in September.

The indicator, which is intended to predict economic activity over the next three to six months, now stands at 115.2 versus its all-time high of 116.5 in May. It stood at 100 in 1996.

Six of the ten indicators that make up the index climbed in November, including stock prices, consumer expectations and manufacturers’ new orders for consumer goods and materials. Declining indicators included vendor performance, average weekly manufacturing hours and building permits.

John Silvia, chief economist at Wachovia Securities in Charlotte, N.C., said the Conference Board data indicate that “the economy will be slower in mid-2005 than it is today.” However, the recent strength of the stock market suggests that “overall, economic growth is still very positive.”

Silvia said the index’s direction over the next several months will be a critical litmus test for the economic recovery’s durability. “If you were to see another string of negative numbers, it would matter very much,” he said.

For its part, the Conference Board said it does not believe the index has fallen far enough or long enough to mark the end of the economy’s expansion.

“In terms of both duration and degree, the indicators suggest an economy losing forward momentum. But even if economic performance in early 2005 proves sluggish, conditions could brighten by spring,” said Ken Goldstein, an economist at the New York-based research group.

Sherry Cooper, chief economist at BMO Nesbitt Burns, said “there’s nothing in the data to lead me to think there will be a recession in ‘05, but we’ve definitely had a slowdown.”

Cooper is forecasting U.S. gross domestic product growth of 3 percent in 2005, compared with roughly 4 percent in 2004.