Bloomberg

25 January 2013

The index of U.S. leading indicators rose in December by the most in three months, signaling stronger housing and job markets will help the world’s largest economy make more progress in the first half of 2013.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.5 percent after no change in November, the New York-based group said today. Other reports showed claims for jobless benefits unexpectedly dropped, manufacturing picked up and consumer confidence waned.

A rebounding residential real estate market driven by record-low interest rates will probably reverberate through the economy this year, spurring sales of appliances and furniture that underpin employment. The budget battles plaguing Washington may prevent a more immediate pickup in growth.

“The recovery is continuing, and it does look like it’s still on pretty good ground here,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida, who correctly forecast the leading indicators index. “By the time we roll into March, firms typically do step up their hiring, and the housing market really starts to get going. Spring is really going to tell the tale on growth.”

Most stocks rose as the economic data and better-than- forecast corporate earnings helped offset the worst slump for Apple Inc. in four years. The Standard & Poor’s 500 Index was at 1,494.82 at the close in New York, almost unchanged from yesterday.

Jobless Claims

Applications for unemployment insurance payments decreased by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department reported today in Washington. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg survey.

The figures may reflect challenges adjusting the data during the holiday period and at the start of quarters. This year’s changes are following patterns seen in prior years, a Labor Department spokesman said as the data were released. In 2008, claims dropped for consecutive weeks in early January and then rebounded at the end of the month.

“The swings are attributable to the calendar,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a drop to 328,000. He said the numbers probably will rise at the end of the month. “We’re going to pay for this,” he said.

The reports on the leading index and jobless claims follow figures showing resilience in the global economy. China’s manufacturers expanded in January at the fastest pace in two years, while euro-area services and factory output shrank less than economists projected.

European Economy

A euro-area composite index based on responses from purchasing managers in both manufacturing and services rose to 48.2 from 47.2 in December, London-based Markit Economics said today. Markit’s factory survey in China climbed to 51.9 from 51.5.

In the U.S., Markit’s preliminary gauge of manufacturing rose to 56.1 in January, the highest since March 2011, from 54 a month earlier as orders and employment accelerated.

“We are seeing, in our business, some degree of improvements in markets in the United States, in the Middle East,” Richard Adkerson, president and chief executive officer at Freeport-McMoran Copper & Gold Inc. (FCX), said on a Jan. 22 earnings call. “China shows promise this year for renewed growth as they spend on infrastructure and takes steps to improve its economy.”

Survey Results

Economists projected the leading index would rise 0.4 percent last month, according to the median estimate in a Bloomberg survey. Estimates from 48 economists ranged from increases of 0.2 percent to 1 percent after a previously reported 0.2 percent drop in November.

Five of the 10 indicators in the leading index contributed to the increase, helped by fewer jobless claims and higher stock prices. The slump in unemployment applications in December partly reflected the rebound in the economy after superstorm Sandy.

The leading gauge was restrained in December by fewer orders to factories and a drop in demand for business equipment.

“A pickup in domestic growth is now more likely compared to a few months ago,” Ken Goldstein, an economist at the Conference Board, said in a statement. “For growth to gain more traction, we also need to see better performance on new orders and an acceleration in capital spending.”

The leading index for January may get another boost from a rally in equities after U.S. lawmakers avoided broad-based tax increases and moved to temporarily suspend the federal debt limit. The S&P 500 climbed almost 5 percent through yesterday.

Fourth Quarter

The world’s largest economy probably grew at a 1.2 percent annual pace in the last three months of 2012, economists surveyed by Bloomberg project a Commerce Department report will show Jan. 30. Economists forecast that the resolution on taxes reached at the start of 2013 will allow growth to proceed at a 2 percent rate for the whole year.

Congress still must figure out how it will handle automatic spending cuts scheduled to begin March 1, an event that could further crimp economic growth.

In the meantime, the housing market may support the expansion while the lawmakers debate the budget. Building permits, a proxy for future construction, increased in December to the highest level since June 2008, showing lower prices, a lack of supply and record-low mortgage rates are encouraging new projects.

Labor Market

The labor market also looks stable. Payrolls expanded by 1.84 million in 2012, matching the prior year.

Consistent job gains may help underpin sentiment. Consumer confidence fell last week to its lowest level in more than three months as concern about the U.S. economy mounted.

The Bloomberg Consumer Comfort Index declined to minus 36.4 in the seven days ended Jan. 20, the weakest since early October, from minus 35.5 the prior period. The measure has fallen for three straight weeks, the longest slump since August.

The setback in sentiment corresponds to the two percentage- point increase in the payroll tax that took effect at the start of 2013, indicating the resulting drop in take-home pay has shaken Americans.