Posted on 01/23/2002 4:50:14 PM PST by BobS
NEW YORK (AP) -- A key gauge of U.S. economic activity rose strongly in December, and the third consecutive monthly gain signaled that the nation's recession may soon be over.
The New York-based Conference Board said Tuesday that its Index of Leading Economic Indicators increased 1.2 percent in December following a revised rise of 0.8 percent in November and an increase of 0.1 percent in October. It was the largest monthly gain since February 1996.
Analysts had been expecting a December increase of about 0.7 percent.
Three upward movements in the index generally indicate that the economy will expand in the next three to six months. The economy has been contracting since last March.
The Conference Board, a business-funded research group, said the November-December gains were the largest for two consecutive months since November-December 1992 following the 1990-91 recession.
``The strong signal from the indicators means that the recession could be over soon,'' the board's economist, Ken Goldstein, said in a statement accompanying the report. ``Three successive monthly increases, each larger than the one before, bring the level of the leading series above the pre-recession peak.''
He attributed the latest rises to Federal Reserve cuts in short-term interest rates and strong growth in the nation's money supply.
``Falling energy prices have the same impact as a tax cut,'' he added. ``Economic demand was stimulated by steep retail discounting.''
The stronger-than-anticipated report failed to impress investors, who continued to fret about the timing of a recovery. The Dow Jones industrial average closed down 58.05, or 0.6 percent, at 9,713.80, falling back from an earlier advance of 70. The technology-focused Nasdaq lost 47.81, or 2.5 percent, to 1,882.53 -- its lowest close since Nov. 21, when the index finished at 1,875.05. The Standard & Poor's 500 index dropped 8.27, or 0.7 percent, to 1,119.31.
Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis, Mo., called the December report ``a very positive sign for the economy.''
He believes the recession will end in the first quarter this year, but that the recovery will be lackluster.
``There's still a lot of caution out there on the part of businesses and consumers because of the terrorist threat,'' Thayer said. ``That could keep (the recovery) subdued this time around.''
Mark Vitner, an economist at Wachovia Securities in Charlotte, N.C., also believes the recession will end in the current quarter. He noted that new claims for unemployment insurance have been declining and that consumer spending, a major engine of economic growth, has been holding.
Still, he predicted that the recovery would be weak.
``The reason is that the imbalances that developed in the economy during the 1990s haven't had time to correct,'' Vitner said. He pointed out that manufacturing and technology are still weak and that the hospitality industry has not fully recovered from the impact of the Sept. 11 terrorist attacks.
In December, eight of the 10 indicators that make up the leading index increased. The two negative contributors both involved manufacturing -- new orders for capital goods and new orders for consumer goods.
The latest report included historical revisions to all components of the index, the Conference Board said.
The Index of Leading Economic Indicators was 111.4, the first reading above its pre-recession peak of 110.9 recorded in January 2000. The revised index reading for November was 110.1.
The index of coincident indicators, which measures currently economic activity, rose 0.1 percent in December to 115.3 following a 0.3 percent decline in November to 115.2. The index of lagging indicators fell 0.1 percent in December to 103.2 after a revised 0.3 percent drop the month before to 103.3.
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