updated 6/21/2007 10:56:49 AM ET 2007-06-21T14:56:49

The U.S. economy should expand modestly in coming months, a gauge of future business activity showed Thursday, indicating consumers and businesses may be shrugging off the weak housing market.

Major Market Indices

The Conference Board said its index of leading economic indicators rose 0.3 percent, higher than the 0.2 percent analysts were expecting. The increase reversed a revised 0.3 percent drop in April, down from the original 0.5 percent decline that economists blamed on soaring gas prices and a drop in building permits.

The reading is designed to forecast economic activity over the next three to six months.

The reading tracks 10 economic indicators. The advancing contributors, starting with the largest, were weekly unemployment insurance claims, stock prices, building permits, consumer expectations and vendor performance.

The negative contributors, beginning with the largest, were real money supply, average weekly manufacturing hours and interest rate spread.

With the latest reading, the cumulative change in the index over the past six months has gone up 0.3 percent.

The report shows that the impact of the housing slump has been fairly contained so far, said Patrick Newport, an economist with Global Insight.

“It just hasn’t spilled over to the rest of the economy,” he said.

Analysts don’t expect the housing industry to rebound until early next year.

The Conference Board report follows a round of dreary economic data this week.

On Tuesday, the Commerce Department said construction of new homes fell in May as the nation’s homebuilders were battered by the crisis in subprime lending and rising mortgage rates. Industry sentiment about the housing market also fell in June to the lowest point in more than 16 years.

The number of workers seeking jobless benefits also shot up unexpectedly by 10,000 last week to a two-month high, suggesting workers were having more difficulty finding work. Still, a generally robust labor market and strength in the global economy have been driving forces in the economy.

While the overall U.S. economy grew at a lackluster 0.6 percent in the first three months of this year, many analysts believe the pace has picked up significantly in the spring.

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