Leading indicators rise 0.5 percent in May, signal economy poised to recover

Posted: Thursday, June 21, 2001

NEW YORK (AP) -- A key gauge of future economic activity rose last month in what was seen an indication that the slumping U.S. economy may be ready for a rebound.

The Conference Board said Wednesday that its Index of Leading Economic Indicators rose 0.5 percent to 109.3 in May, moving higher for a second straight month and beating analysts' expectations of a 0.3 percent increase.

Higher stock prices and lower interest rates drove the index upward.

''This is telling you things are dismal now, but they're going to get better,'' said Hugh Johnson, chief investment officer at First Albany Corp. ''Investors couldn't give a hoot about where they are; they give a hoot about where they're going. You don't drive a car by looking through the rearview mirror.''

Plunging corporate earnings, large-scale layoffs and anemic manufacturing activity have pushed stock prices lower over the past year.

''It's pretty dark right now, but the dawn is right on the horizon,'' said Sung Won Sohn, chief economist at Wells Fargo.

The index is closely watched because it indicates where the overall economy is headed in the next three to six months. It stood at 100 in 1996, its base year.

The April and May readings represented the first back-to-back increases since the last two months of 1999.

Economists said the May reading reflected the Federal Reserve's aggressive cutting of interest rates during the first half of the year.

The Fed reduced interest rates five times this year, and is expected to trim them again when it meets next week, to try to keep the economy from slipping into a recession.

Stocks closed higher Wednesday, with the Dow Jones industrial average climbing 51 points to 10,647 and the Nasdaq composite index advancing 39 points to 2,031.


On the Net: http://www.conferenceboard.org

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