Indicator numbers better than expected
NEW YORK (AP) – Investors sent stocks surging Monday after learning that a key gauge of U.S. economic activity posted a better-than-expected performance in July. The Conference Board said its Index of Leading Economic Indicators fell 0.4 percent to 111.7. Analysts had expected a decline of 0.5 percent.
The news helped push stocks higher, sending the Dow Jones industrial average up 212.87 points, or 2.4 percent, at 8,990.83, according to preliminary calculations.
The Nasdaq composite index was up 33.67, or 2.5 percent, at 1,394.68. The broader Standard & Poor’s 500 index rose 21.97, or 2.4 percent, at 950.74.
Experts said the Conference Board decline confirmed that the economy is still in a shaky recovery, but they were encouraged that consumers were continuing to buy big ticket items like cars and homes.
“The economy has run into a soft patch, and we are trying to get out of the rut,” said Sung Won Sohn, chief economist for Wells Fargo & Co.
The index measures where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. July’s decline was the third time in the last four months that the index failed to increase.
Contributing most to last month’s decline were stock prices, the New York-based Conference Board said.
“Volatile financial markets, corporate scandals and sagging consumer expectations are trouble spots,” said conference board economist Ken Goldstein. “But latest evidence shows no significant weakening in the consumer markets, with home and car buying continuing to be strong.”
While consumers continued to snap up expensive goods, they cut back on discretionary spending like clothes, travel and restaurant meals, Sohn said. There were signs, however, that some discretionary spending may be increasing.
Home improvement retailer Lowe’s on Monday reported a 42 percent increase in second-quarter earnings and raised forecasts for the third quarter that beat analysts’ expectations. And shares of toy retailer Toys “R” Us rose after the company narrowed its loss to $17 million in the second quarter.
“The stock market is improving, and consumers are hitting the malls again,” Sohn said. “Hopefully even businesses would feel better about future sales prospects to start spending money on capital equipment.”
Mark Vitner, senior economist with Wachovia Securities, said the heavy car sales were significant because people “worried about their jobs don’t go out and buy new cars.”
“We would look for the numbers to come back in a couple months, and that should help the leading index bounce back in the fall,” Vitner said.
The Conference Board’s coincident index, which measures current economic activity, rose 0.1 percent in July to 115.0. The index of lagging indicators, which reflects changes that have already occurred, rose 0.1 percent last month to 100.7.
Citing uncertainties about the strength of the economic recovery, the Federal Reserve has left short-term interest rates at 40-year lows this year. Fed policy-makers last week decided to hold rates steady, but opened the door to future reductions if economic conditions warrant.
—
On the Net:
http://www.conference-board.org