Leading Economic Indicators Rise Fastest Since May

A gauge of future economic activity grew in October after a summer lull, suggesting the U.S. economy will slowly start strengthening early next year. But unemployment is likely to remain high in 2011, economists say.

The Conference Board, a private research group, said its index of leading economic indicators increased 0.5 percent last month. That matches a revised September reading of 0.5 percent. The September number had initially been reported as up 0.3 percent.

The latest increases are the fastest since May.

The index “seems to be predicting a near-term acceleration in growth,” said Ian Shepherdson, chief U.S. economist of High Frequency Economics.

The index had risen steeply since April 2009 on the strength of the stock market, record-low interest rates and a rebound in manufacturing. But the rate of expansion tapered off this past summer as the housing market struggled, a debt crisis hit Europe and hiring was weak.

The pickup in the index this autumn suggests that “change may be around the corner” for the sluggish economy, said Conference Board economist Ken Goldstein. “Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring.”

While the economy may be improving after its summer slowdown, growth remains considerably weaker than it was at the end of 2009 and earlier this year.

The economy grew at a 2 percent pace in the July-September quarter after increasing 1.7 percent from April through June.

There may be more “modest growth” ahead, said Jennifer Lee, senior economist at BMO Capital Markets. But that likely won’t be enough to get employers hiring enough to bring down the unemployment rate, currently at 9.6 percent. BMO expects a jobless rate of 9.3 percent at the end of next year.

The leading indicators are designed to predict if the economy will grow or shrink based on measurements of current conditions. Conference Board analyzes data, most of which has already been released, on real estate, manufacturing, employment, consumer confidence and financial markets. The Conference Board also includes its own estimates about manufacturers’ new orders and the country’s money supply.

Six of the 10 indicators Conference Board tracks improved in October, led by financial conditions: stock prices rose, the amount of money in the financial system increased, and the difference between 10-year interest rates and the overnight interest rate that the Federal Reserve has kept at a record low near zero. A wide gap between the two rates has historically suggested that investors expect economic activity to pick up.

The Fed earlier this month announced a $600 billion bond-buying program intended to drive interest rates lower, supporting the economy. Lower rates can encourage consumers to borrow and spend more.

TALI ARBEL, AP Business Writer NEW YORK