Indicators suggest growth to continue

Joe Richter

Thursday, June 17, 2004 | 8:59 a.m.

The index of leading U.S. economic indicators rose 0.5 percent in May as factories added hours and the money supply grew, a sign the expansion will continue.

The increase in the Conference Board's gauge of the economy's likely performance over the next three to six months follows a rise in April of 0.1 percent. The index, a composite of several measures, has advanced in 13 of the past 14 months.

"The data reflect a robust economic environment this spring and point to more of the same this summer," said Ken Goldstein, an economist at the Conference Board in New York. "The confluence of economic strengths is a recipe for continued job gains, and possibly a little more inflation."

U.S. producer prices rose 0.8 percent in May, the biggest increase since March 2003, the Labor Department reported separately today. Core prices, which exclude food and energy, rose 0.3 percent, the most since January, after increasing 0.2 percent in April. Higher prices for food, fuel, automobiles and light trucks led the increase in the total index.

The Labor Department also reported today that initial claims for unemployment benefits fell to 336,000 last week from 351,000 the week before. The closing of offices in about 15 states Friday because of former President Ronald Reagan's funeral may have contributed to the decline, which was larger than expected.

Economists had projected a 0.4 percent increase in the leading index, based on the median of 51 forecasts in a Bloomberg News survey.

Eight of the 10 indicators that the Conference Board uses to derive the index contributed to the rise. A drop in consumer confidence and stock prices were a drag on the index.

The index of coincident indicators, a gauge of current economic activity, rose 0.3 percent in May, the same as the prior month. The index tracks payrolls, incomes, sales and production. The index of lagging indicators rose 0.1 percent last month, also the same as in April.

Gross domestic product may expand 4.6 percent this year, the most in two decades, according to economists surveyed May 27 to June 7 by Bloomberg News. The economy grew 3.1 percent last year.

The money supply measure tracked by the Conference Board averaged $5.83 trillion in May, compared with $5.80 trillion a month earlier. That includes checking accounts, time deposits, mutual funds and other accounts from which funds can be easily accessed.

Weekly factory hours rose to 41.1 during May from 40.7 in April. A widening in the spread in the yield between the Treasury's 10-year note and the overnight bank lending rate, also made positive contributions.

The yield on the 10-year Treasury note averaged 4.70 percent in May, up from 4.32 percent in April. Reports showing an improving labor market and rising demand for goods and services have prompted speculation among investors that the Federal Reserve will increase its target rate for overnight loans between banks from a 46-year low of 1 percent when policy makers gather at the end of the month.

The Conference Board also reported an increase in factory orders for consumer goods and orders for non-defense capital goods. Supplier delivery times increased, a sign of higher demand. Initial jobless claims fell, while building permits rose.

Fed Chairman Alan Greenspan told the Senate Banking Committee Tuesday that inflation is "not likely to be a serious concern" and the Fed can stick to its plan for "measured" increases in the benchmark interest rate unless that changes.

The Institute for Supply Management said earlier this month that its index of supplier deliveries, which measures how long it takes to get materials, rose to its highest since April 1979.

The economy added 248,000 workers in May, and factories added the most workers since August 1998.

Thirty percent of U.S. employers plan to add workers in the third quarter, the most since the last three months of 2000, according to a survey released this week by Manpower Inc., the world's No. 2 supplier of temporary staff by revenue. Switzerland's Adecco SA is the world's biggest.