Monday, April 19, 2004 | 10:48 a.m.
SUN WIRE REPORTS
The index of leading economic indicators rose 0.3 percent in March and had its greatest year-on-year increase in two decades as the U.S. expansion gained momentum.
Companies took longer to fill orders in March, showing an increase in demand, while jobless claims fell, building permits rose and tax refunds put more money in the hands of consumers. The indicators helped push up the Conference Board's index, which was unchanged in February after 10 consecutive increases.
The latest Conference Board numbers had little apparent effect on trading today. Investors had hoped the report would show that the economy was growing fast enough to create jobs, but were concerned that a better-than-expected reading might help prompt the Federal Reserve to raise interest rates.
"The interest rate concerns are definitely taking a little bit of steam out of these earnings," said Scott Wren, equity strategist for A.G. Edwards & Sons. "We'll continue to get good earnings, and economic data shows that we've got some good economic activity going on here. But until we get the interest rate question settled, we're going to continue to see a lot of caution."
At midday, the Dow Jones industrial average fell 23.78, or 0.2 percent, to 10,428.19.
The index's increase suggests that economists may need to reconsider their projections for growth in the second quarter. The economy is forecast to expand 4.3 percent at an annual rate this quarter, compared with 4.4 percent in January-March, according to the median forecast in the most recent monthly Bloomberg News economist survey. For the year, growth may average 4.6 percent, the fastest since 1984, according to the survey.
"We have good momentum going into the second quarter," said Chris Wiegand, an economist at Citigroup Global Markets Inc. in New York. "We should be around 5 percent" this quarter. "We are going to continue to see above-trend demand growth in the next couple of quarters."
The New York-based Conference Board's index attempts to show how the economy will perform over the next three to six months. Even with the pause in February, the index was up 4.4 percent from a year earlier, the most since a 4.6 percent rise in the year that ended with April 1984.
Economists had projected a 0.3 percent increase in the leading index, based on the median of 53 forecasts in a Bloomberg News survey. The 10 consecutive increases before February were the most since an 11-month stretch that ended in July 1983.
"There is every reason to expect further increases in the months ahead," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said.
The 10-year U.S. Treasury note rose for a second day in New York on speculation that the Federal Reserve is less likely than previously thought to increase the benchmark interest rate as soon as next quarter. Reports this month showing a surge in retail sales, unexpectedly large job gains and a bigger-than-forecast rise in consumer prices in March had led some investors to anticipate a rate increase by September.
Comments last week from Fed Governor Ben S. Bernanke and Richmond Fed President Alfred Broaddus suggest the central bank wants more proof inflation is accelerating before lifting the overnight bank lending rate from 1 percent, almost a 46-year low, where it has been since June.
The 4 percent note maturing in 2014 rose almost 1/32 point, leaving the yield unchanged at 4.33 percent as of 11:31 a.m. in New York.
Six of the 10 indicators the Conference Board uses to derive the leading index contributed to the rise, and four made negative contributions.
New orders for consumer goods and a rise in consumer expectations joined the rise in building permits, slowdown in delivery times, drop in jobless claims and increase in money supply in accounting for the increase. Longer delivery times indicate that manufacturers are having trouble keeping up with orders.
A narrowing of the spread in the yield between the Treasury's 10-year note and the overnight bank lending rate, a drop in manufacturing hours, lower stock prices and a decrease in orders for capital goods restrained the rise.
The money supply measure tracked by the Conference Board averaged $5.78 trillion in March compared with $5.76 trillion a month earlier.
Bloomberg News
contributed to this report.
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