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Gauge of future business activity rises in May

A forecast of economic activity rose in May by the largest amount in more than five years, the latest sign that the recession is easing.
/ Source: The Associated Press

A forecast of economic activity rose in May by the largest amount in more than five years, the latest sign that the recession is easing.

The Conference Board said Thursday that its index of leading economic indicators — designed to forecast activity in the next three to six months — rose 1.2 percent, the biggest gain since March 2004. Economists surveyed by Thomson Reuters expected a 0.9 percent increase in May.

The New York-based group said activity in the six-month period through May also rose 1.2 percent — the first time that measure has grown since April 2007. The April reading was revised up to a 1.1 percent gain from 1 percent.

"The recession is losing steam," said Conference Board economist Ken Goldstein. "If these trends continue, expect a slow recovery beginning before the end of the year."

However, Goldstein said the job market will take longer to rebound.

The Labor Department on Thursday said the total number of people filing for unemployment insurance fell by 148,000 to nearly 6.7 million in the week ending June 6.

That was the largest drop in more than seven years and snapped a streak of 19 straight record-highs. Initial claims for jobless aid, meanwhile, rose 3,000 to a seasonally adjusted 608,000 last week.

Seven of the Conference Board index's 10 components grew in May, including money supply, building permits, consumer expectations, stock prices and vendors' deliveries of supplies to companies.

But employment factors — claims for jobless aid and weekly manufacturing hours — weighed down the index, as did the level of manufacturers' orders for consumer goods.

While conditions are in place for a rebound later this year, "prospects of a recovery are still fragile," said Sal Gautieri, economist at BMO Capital Markets. "There's no guarantees."

U.S. households have lost billions of dollars in the stock market in the last two years, and gasoline prices have risen by more than $1 since the start of the year. That could weigh on consumer spending — which makes up 70 percent of U.S. economic activity.

"We're not completely out of the woods, but as long as interest rates stay low and fiscal stimulus keeps coming, equity markets consolidate recent gains, we still think recovery is on track for the fourth quarter," Gautieri said.

Some economists say the recession may be followed by a "jobless recovery," as skittish employers remain reluctant to hire, even as their business improves. That shows "how deep a hole we're in," Goldstein said.

The country's jobless rate, which rose to a 25-year high of 9.4 percent in May, is expected to hit double digits by next year.