The index of U.S. leading economic indicators rose at a slower pace in June, signaling the recovery will be restrained in the second half of the year.
The Conference Board’s gauge of the outlook for the next three to six months climbed 0.3 percent after a 0.8 percent gain in May, the New York-based research group said today. Economists projected a 0.2 percent rise in June, according to the median forecast in a Bloomberg News survey.
Cheaper fuel costs, an easing of supply bottlenecks after the Japan earthquake and better weather may combine to help give the recovery a boost. At the same time, a reluctance to ramp up hiring and limited income growth may restrain consumer purchases, the biggest part of the economy.
“This doesn’t necessarily mean that the economy is going to come roaring back,” Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “There will be growth, but it’s not the sort of growth that’s going to take your breath away.”
Estimates of the 51 economists surveyed by Bloomberg ranged from a drop of 0.1 percent to an increase of 0.6 percent.
Stocks rose after reports that European Union officials have come up with a plan to recapitalize struggling banks and halt a surge in bond yields. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,341.8 at 10:15 a.m. in New York.
Manufacturing in the Philadelphia area rebounded in July from its first contraction this year, a sign the industry is recovering from earlier supply shortages caused by Japan’s earthquake, another report today showed.
Philadelphia Manufacturing
The Federal Reserve Bank of Philadelphia’s general economic index rose to 3.2 from minus 7.7 the prior month. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
The labor market is struggling gain momentum. Initial jobless claims increased by 10,000 to 418,000 last week, the Labor Department said today.
Consumer sentiment stagnated last week as Americans’ optimism over their current finances clashed with growing pessimism about the state of the economy. The Bloomberg Consumer Comfort Index was minus 43.3 in the period to July 17, the highest since April, compared with minus 43.9 the prior week.
Five of the 10 components of the Conference Board’s leading index contributed to the June gain. The biggest contribution came from an increase in the money supply followed by a positive spread between short- and long-term interest rates and a gain in building permits.
Economic Headwinds
“The economy faced some recent unexpected headwinds, including a shortage of auto and electronic parts from Japan after the earthquake, and damaging tornado and flooding activity in the U.S.,” Ken Goldstein, a Conference Board economist, said in a press release. “Another potential headwind is the debt ceiling issue.”
Seven of the 10 indicators that make up the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times. The Conference Board estimates new orders for consumer goods, bookings for capital goods and money supply adjusted for inflation.
Declines in stock prices, consumer expectations, orders for capital equipment and factory hours weighed on the measure.
Fed Chairman Ben S. Bernanke said this month that “disappointing” job growth in May and June were due to temporary effects that included higher energy costs and parts shortages from Japan.
Bernanke on Economy
“Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation,” Bernanke told the House Financial Services Committee on July 13.
The contribution of money supply to the leading index was the biggest since December 2008. Money supply increased in June as institutional money funds experienced outflows partly because of their exposure to European banks during the sovereign debt crisis, according to Lou Crandall, chief economist at Wrightson ICAP LLC. Banks were the primary recipients of the proceeds, resulting in a jump in money supply.
Employers added 18,000 workers to payrolls in June, the fewest in nine months, and the unemployment rate rose to 9.2 percent.
Consumer Expectations
The Thomson Reuters/University of Michigan index of consumer expectations dropped to 64.8 in June from 69.5. Weakening household confidence may pose a risk to consumer spending, which accounts for 70 percent of economic activity.
Retailers are “cautious” about the U.S. economy, according to David Hargreaves, chief operating officer of Pawtucket, Rhode Island-based Hasbro Inc. (HAS)
“In the U.S. we’re two years out of recession, unemployment is increasing, under-employment is increasing, house prices are still going down,” Hargreaves, chief operating officer of Hasbro said on a July 18 conference call with analysts. “Retailers will be appropriately cautious as they go into the end of the year.”
Sales at retailers stagnated in June, while the S&P 500 average fell 3.8 percent from the prior month. After reaching a high this year of 1,363.61 on April 29, stocks have declined, partly a reflection of a slowing recovery.
The U.S. economy, the world’s largest, expanded at a 1.9 percent annual rate in the first quarter, the slowest in almost a year. Gross domestic product rose 2 percent in the following three months, according to a Bloomberg survey of economists from June 28 to July 7.
It may average 3.2 percent in the second half of the year, the median projection in the survey showed.
To contact the reporter on this story: Jillian Berman in Washington at jberman13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
