Gain in U.S. Leading Index Points to Second-Quarter Rebound

The index of U.S. leading indicators rose in April for the fourth straight month, showing the economy will strengthen after a slowdown earlier this year.

The Conference Board’s index, a gauge of the outlook for the next three to six months, rose 0.4 percent after a revised 1.0 percent gain in March that was larger than previously reported, the New York-based group said today. The median forecast of 47 economists surveyed by Bloomberg called for an advance of 0.4 percent.

The gain indicates the first-quarter slowdown was more the result of harsh weather than underlying weakness in the expansion. Faster job growth that leads to a pickup in wages would help provide a further boost to consumer spending, which accounts for 70 percent of the economy.

“It’s a slow, still-uneven recovery, but still modest growth,” Kenneth Kim, an economist at Stone & McCarthy Research in Princeton, New Jersey, said before the report. “It’s kind of idling gains, not very strong.”

Estimates in the Bloomberg survey ranged from gains of 0.2 percent to 0.6 percent. The revised gain for March matched September’s reading as the biggest advance since March 2011.

Other reports today showed that sales of previously owned U.S. homes rose in April for the first time this year and more Americans filed applications for unemployment benefits last week. Stocks were higher, with the Standard & Poor’s 500 Index rising 0.2 percent to 1,891.33 as of 10:17 a.m. in New York.

Five of the 10 indicators in the Conference Board’s leading index contributed to the increase.

Coincident Indicators

The index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in April after a 0.3 percent gain the prior month.

The coincident index tracks payrolls, incomes, sales and production, measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

“Despite a brutal winter which brought the economy to a halt, the overall trend in the leading economic index has remained positive,” said Ken Goldstein, economist at the Conference Board. “If consumers continue to spend, and businesses pick up the pace of investment, the industrial core of the economy will benefit and GDP growth could move closer towards the 3 percent range.”

A measure of lagging indicators increased 0.2 percent after a 0.7 percent advance the previous month.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Mark Rohner

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Industrial Production in the U.S. Unexpectedly Fell in April

Industrial production in the U.S. unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing.

Output at factories, mines and utilities decreased 0.6 percent after a 0.9 percent gain the prior month that was larger than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 81 economists called for an unchanged reading. Manufacturing, which makes up 75 percent of total production, decreased 0.4 percent.

The disappointing result in April may signal a pause after the biggest back-to-back monthly gains in manufacturing since 2010, as factories rebounded from an unusually harsh winter. Deere & Co. (DE) is among companies projecting a pickup in demand and today’s report also contrasts with recent figures, such as the New York Federal Reserve’s Empire State index, that show the economy is on track for faster economic growth this quarter.

“Manufacturing is back at a more sustainable level; it’ll do OK,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who had forecast a 0.5 percent drop in industrial output. “I don’t see the decline as the start of a new downward trend. The gains in February and March exceeded underlying trends.”

Shares Drop

Stocks fell, with equities poised for a second day of losses, after Wal-Mart Stores Inc. forecast profit below estimates. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,874.03 at 9:57 a.m. in New York.

Estimates for industrial production in the Bloomberg survey ranged from a drop of 0.6 percent to an increase of 0.5 percent. The prior month was previously reported as a gain of 0.7 percent.

Manufacturing accounts for about 12 percent of the economy.

The Institute for Supply Management’s factory index rose to 54.9 from the prior month’s 53.7, the Tempe, Arizona-based group’s reported on May 1. Seventeen of 18 industries reported growth in April, the most in three years. Readings above 50 indicate expansion.

Today’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, fell to 78.6 percent from 79.3 percent the prior month.

Warmer Weather

Utility output slumped 5.3 percent, the most since January 2006, as temperatures warmed following an unusually harsh winter. It followed a 0.6 percent gain the previous month.

Mining production, which includes oil drilling, increased 1.4 percent.

Carmakers were among the bright spots in today’s report. The output of motor vehicles and parts increased 0.1 percent after a 0.4 percent advance a month earlier, today’s report showed. Excluding autos and parts, industrial production fell 0.6 percent after a 0.9 percent gain in March.

Industry data indicate vehicle sales will remain a mainstay for factories. Cars and light trucks sold at a 16 million annualized pace in April after a 16.3 million rate in March, according to Ward’s Automotive Group. Those were still the best back-to-back months since September-October of 2007. GM beat estimates for April while Ford Motor Co. (F) missed them.

“The economy appears to be on an improving trend for the second quarter and the rest of the year,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Michigan-based Ford, said on a May 1 sales call. She cited advances in consumer confidence and employment as helping demand.

Brighter Outlook

Moline, Illinois-based Deere, the largest agricultural-equipment maker, posted lower-than-expected sales in its fiscal second quarter through April. At the same time the company projected construction and forestry sales will climb 10 percent in the full year on a recovery in U.S. housing. Caterpillar Inc., the world’s largest maker of construction equipment, last month doubled its 2014 sales growth forecast for building equipment.

Machinery production dropped 1.6 percent and construction materials were unchanged, today’s report showed. Output of computers and electronics decreased 0.4. Consumer goods production declined 1.3 percent.

Retail sales held steady in April, advancing 0.1 percent after a 1.5 percent surge in the previous month that marked the biggest gain in four years, Commerce Department figures showed on May 13.

The economy, which grew at a 0.1 percent annualized rate from January through March, may expand at a 3.5 percent pace in the second quarter, according to the median forecast of economists surveyed by Bloomberg News from May 2 to May 7.

The New York Fed’s manufacturing index, known as the Empire State gauge, jumped to 19 this month, the highest since June 2010, another report showed today.

To contact the reporter on this story: Shobhana Chandra in Washington atschandra1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net

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