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Economy's leading indicators edge higher

A closely watched gauge of future economic activity edged higher in December, pointing to continued but, perhaps, uneven growth in the year ahead, a private research group said Monday.
/ Source: The Associated Press

A closely watched gauge of future economic activity edged higher in December, pointing to continued but, perhaps, uneven growth in the year ahead, a private research group said Monday.

The Conference Board said its Index of Leading Economic Indicators, designed to take the pulse of the economy in the near term, rose 0.1 percent last month, smaller than the 0.2 percent gain forecast by analysts. The December increase followed gains of 0.9 percent in November and 1.0 percent in October, both of which were revised upward.

The three consecutive monthly gains suggest an economy that is likely to expand moderately in the near term and, perhaps, slow later in the year, the board and analysts said.

“What it tells us is that we may see a bit of an easing off of economic growth or momentum,” said Anthony Chan, chief economist at J.P. Private Client Services. “But even though the trajectory of growth may, in fact, ease a bit in 2006, I think the expansion remains intact.”

Another economist, Patrick Fearon of A.G. Edwards & Sons, said the report is consistent with an economy that is likely to grow at an average pace.

The leading index’s increase in December reflects improvements in six of its 10 components, including consumer expectations, real money supply, stock prices, average first-time claims for jobless benefits, the interest rate spread and new orders to manufacturers for consumer goods.

In addition to the improvement in the leading index, the Board’s coincident index — which gauges the current economy — also improved, gaining 0.2 percent, following a 0.4 percent increase in November.

Its lagging index, offering a rear-view mirror on the economy, also gained, increasing 0.1 percent in December. That followed a gain of 0.5 percent in November.

“The indicators may be signaling a spurt of growth ahead (perhaps in the spring) which could be followed by a slower pace of activity later in 2006,” Conference Board economist Ken Goldstein said in a written statement. He said the new reading is “suggestive of a quite choppy pattern of growth.”

The small gain in the index last month may reflect softening in manufacturing and its drag on the economy, although that appears to be limited to the auto sector, A.G. Edwards’ Fearon said.

Chan said the small increase in the index points to economic growth that has moderated for much of the past year, after particularly robust expansion in 2004. That will continue, he said, as consumers and businesses pay more to borrow money and purchase fuel.

“With all this as a backdrop — with the Fed raising rates and energy prices rising — it is no secret that the outcome is likely to be slower growth,” he said.