Let look at this report by Bloomberg and I'll make my personal elaboration later (after I'm done with my current research)
Jan. 21 (Bloomberg) -- The index of U.S. leading indicators increased more than anticipated in December, a sign the economy will keep growing through the first half of the year.
The New York-based Conference Board’s gauge of the outlook for the next three to six months rose 1.1 percent, the most in three months, after climbing 1 percent in November. The December gain was the ninth straight and exceeded the median forecast in a Bloomberg News survey for a 0.7 percent rise.
Fewer firings, rising stock prices and efforts by the Federal Reserve to keep short-term interest rates low boosted the leading index and may help keep Americans spending. Faster economic growth will hinge on sustained employment gains that have yet to materialize.
“The economic recovery still has momentum,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the December gain. “Right now, the linchpin is confidence. Both businesses and consumers need to feel like it’s a worthwhile thing to start spending money again.”
A separate report showed manufacturing in the Philadelphia area expanded in January for a fifth month. The Fed Bank of Philadelphia’s general economic index fell to 15.2 this month from 22.5 in December. Readings greater than zero signal growth.
Jobless Claims
Labor Department figures today showed jobless claims unexpectedly increased to 482,000 last week from 446,000 a week earlier, reflecting a backlog of applications from the year-end holidays.
U.S. stocks drifted between gains and losses after the reports. The Standard & Poor’s 500 Index rose 0.2 percent to 1,140.11 at 10:06 a.m. in New York. Treasury securities fell.
Economists surveyed by Bloomberg projected the leading indicators index would increase 0.7 percent from a previously reported 0.9 percent gain in November, according to the median of 58 estimates. Estimates ranged from gains of 0.3 percent to 1.1 percent.
Eight of the 10 indicators in the leading index contributed to the gain, led by the difference between long-term and short- term interest rates, building permits and a drop in jobless claims in December. Stock prices, consumer expectations and supplier deliveries also helped the index.
None of the indicators fell during the month, while gauges of the factory workweek and orders for consumer goods were unchanged.
Coincident Indicators
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in December for a third month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators decreased 0.2 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
The world’s largest economy will probably expand at a 2.7 percent annual pace from January through March and at a 2.9 percent rate in the following quarter, according to the median estimate of economists surveyed by Bloomberg earlier this month.
Interest Rates
The index’s positive spread between the yield on the 10- year Treasury note and the overnight fed funds rate is based on expectations the economy will keep improving.
Seven of 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.
The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
Jobless claims averaged 460,250 in December, down from 480,750 a month earlier. U.S. stocks continued to rise last month as reports suggested the economy was improving. The S&P 500 averaged 1,110.38 in December, compared with 1,088.07 the previous month. The index reached the highest closing level in 14 months on Dec. 28.
Applications for building permits rose 11 percent to a 653,000 annual rate last month, the most since October 2008, the Commerce Department said yesterday.
The Reuters/University of Michigan’s reading on consumer expectations for the next six months rose to 68.9 in December from 66.5 the previous month.
‘Seeing Stabilization’
“We are seeing stabilization in the economy,” Brian Moynihan, chief executive of Bank of America Corp., said yesterday in an interview. The head of Bank of America, the largest U.S. lender, said the economy is still “fragile.”
Reiterating their pledge to keep interest rates “exceptionally low” for “an extended period,” Fed policy makers last month said the recovery faced hurdles.
The central bankers, who next meet Jan. 26-27 in Washington, will keep their target for overnight lending among banks unchanged through September before raising it by half a point in the fourth quarter, according to the median forecast of economists surveyed this month. The Fed has kept the benchmark rate near zero since December 2008.
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