Washington, Jan. 23 (Bloomberg) -- An index designed to predict the direction of the U.S. economy rose for a third straight month, buoyed by a surge in building permits and longer factory workweeks and supporting forecasts that growth may speed up by midyear. December's 0.1 percent rise in the Conference Board's index of leading economic indicators followed gains of 0.5 percent in November and 0.2 percent in October. The string of increases was the longest since the four months that ended in March. In addition, the four-week average of first-time jobless claims fell for a third straight week, the Labor Department said today. ``The conditions for the recovery to gather momentum are very good,'' Robert McTeer, president of the Federal Reserve Bank of Dallas, told the Chamber of Commerce in Arlington, Texas. The Fed is forecast to hold its benchmark interest rate steady next week amid signs that 12 rate cuts since January 2001 may be starting to help the economy. Bolstered partly by a boom in home construction, the economy will probably grow at a 3.2 percent annual rate next quarter, according to the latest Blue Chip Economic Indicators forecast.
Next week's report on gross domestic product may show the fourth-quarter's annual growth rate was 1 percent, according to a Bloomberg News economist survey, down from a forecast of 1.5 percent in December. A wider-than-expected trade deficit and an unexpected drop in factory production last week prompted economists from several investment banks including Merrill Lynch & Co. and UBS Warburg LLC to lower forecasts.
Building Permits
``Where the economy had been in the fourth quarter is very disturbing,'' said Sherry Cooper, chief economist at BMO Nesbitt Burns in Toronto, who lowered her fourth-quarter forecast to 1 percent from 2 percent on Friday and was the top growth forecaster in the 12 months ended Sept. 30 in a Bloomberg survey. ``I'm heartened by the initial claims number and a positive reading in the leading indicators.'' A surge in building permits and a rise in hours worked at manufacturers contributed to the increase in the index of leading indicators. Eight of the 10 measures the New York-based Conference Board uses to calculate the index rose, while two fell. The group bases its measurement on seven previously reported economic statistics and estimates for three others. Economists had expected the index to be unchanged in December, based on the average forecast of 51 economists in a Bloomberg survey. In addition to the rise in building permits and a longer factory workweek, the index was bolstered by a more confident consumer and increases in orders for both business equipment and consumer goods. Slowing vendor delivery times, which imply rising demand, and a rise in money supply added to the index. A wider spread between the yield on the 10-year Treasury note and the overnight bank lending rate also contributed to the increase.
Jobless Claims
Falling stock prices and rising jobless claims restrained the leading-indicators index. The separate Labor Department report today showed that the number of U.S. workers filing new claims for state unemployment benefits rose by 18,000 to 381,000 last week. Economists had projected an increase to 380,000 new jobless claims last week, based on the median of 35 forecasts in a Bloomberg News survey, from 360,000 originally reported for the previous week. Still, the less volatile four-week moving average of first- time claims fell to 386,500 from 388,500 the prior week. The number of workers continuing to collect unemployment benefits increased to 3.408 million during the week that ended Jan. 11 from 3.321 million the prior week.
Consumer Expectations
The Conference Board's index of coincident indicators, a gauge of current economic activity, was unchanged in December for a second month, suggesting the economy slowed as 2002 came to a close. The index of lagging economic indicators fell 0.3 percent for a second month. The University of Michigan's gauge of consumer expectations rose to 80.8 in December from 78.5 in November. The outlook has since worsened, with the gauge of expectations dropping to 75.2 in January, the lowest since 73.1 in October of last year. The housing market is still a source of support for the U.S. economy. Building permits, an indicator of future construction, surged in December to 1.88 million units at an annual rate, the fastest since December 1986. Thirty-year fixed-rate mortgages that have dropped below 6 percent, the lowest in four decades, are spurring demand for new homes. Stock prices may be a cause for concern. The Standard & Poor's 500 Index dropped almost 6 percent in December, and a spate of profit warnings yesterday wiped out a rebound in the first three weeks of January. The index of 500 stocks including Eastman Kodak Co. and J.P. Morgan Chase & Co., yesterday closed at 878.36, just below the 879.82 at the end of last year.
The S&P 500 rose 9 points, or 1.2 percent, at 4:05 p.m. in New York. The Dow Jones Industrial Average rose 51 points, or 0.6 percent. The benchmark Treasury security due in November 2012 fell about 1/4 point, pushing its yield up 2 basis points to 3.94 percent. Some companies are still firing workers. Kodak, the biggest maker of film, yesterday said it would eliminate as many as 2,200 jobs as the slumping economy and consumers' shift to digital cameras hurt sales and profit. //www.bloomberg.com