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Leading Economic Indicators Gain for Fifth Straight Month
By Paul Villella
March 28, 2012
An important measure of future U.S. economic activity rose in February for the fifth straight month, fresh evidence that the economy is gaining momentum.

The New York-based Conference Board, a business research group, says its Index of leading economic indicators rose 0.7 percent in February, after a 0.2 percent increase in January. The increase pushed the Index to its highest point since June 2008.

Best Job Growth in Two Years

The Index is designed to anticipate economic conditions three to six months out. Its steady rise has coincided with other positive data that suggest the recovery is picking up -- including the best job growth in two years.

The Index is based on ten key variables. These variables have historically turned downward before a recession and upward before an expansion. The Index has generally proved capable of predicting recessions over the past 50 years

The report "suggests that progress on jobs, output, and incomes may continue through the summer months, if not beyond," said Ken Goldstein, an economist at the Conference Board, a business research group.

Eight of the ten indicators tracked by the board increased last month, while only two fell. The largest contributors to the growth of the index were declining applications for unemployment benefits, the spread between short-term and long-term interest rates and rising stock prices.

Applications for Jobless Benefits Decline

As the Conference Board pointed out, applications for unemployment benefits have dropped to their lowest level in four years, reinforcing signs the U.S. labor market is picking up.

The Labor Department reported that jobless claims decreased by 5,000 to 348,000 last week, the fewest since February 2008. The number of people on unemployment benefit rolls and those getting extended payments also fell.

Dismissals are down and reports show companies are becoming more willing to expand workforces amid evidence sales are improving. Employment growth will help spur consumer spending, which accounts for about 70 percent of the economy.

"The labor market is clearly getting better," notes Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. "We're seeing much fewer layoffs. This coincides with an increase in hiring."

Bernanke Issues Note of Caution

But Federal Reserve Board Ben Bernanke cautions that there is still not enough spending and investment to sustain the economic recovery.

Bernanke told a George Washington University audience last week that consumer demand remains weak relative to its level before the Great Recession.

"Consumer spending has not fully recovered. It's still quite weak relative to where it was before the crisis. We lack a source of demand to keep the economy growing.

His comments suggest that the Federal Reserve will continue to hold short-term interest rates near zero through 2014. The Fed has has stuck with that timetable despite three months of strong job growth and other signs of economic improvement.

Looking ahead, the Labor Department will release its March employment report on April 6, which should provide more evidence of the strength of the recovery and the improvement in the job market.

Paul Villella is HireStrategy’s President & CEO. HireStrategy provides contract staffing services, direct hire search, and executive search solutions in the technology, finance & accounting, sales & marketing, human resources and administrative professions. HireStrategy, an Inc. 5000 company, has been ranked by The Washington Business Journal as the top staffing firm in the Washington DC region, and recognized by Washingtonian Magazine as one of Washington's "Great Places to Work."

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