Leading Index Probably Rose in December: U.S. Economy Preview

Jan. 17 (Bloomberg) -- The index of leading indicators probably rose in December for a ninth month, while home construction was little changed, indicating housing’s role in the U.S. expansion is waning, economists said before reports this week.

The Conference Board’s measure of the outlook for the next three to six months probably climbed 0.7 percent last month, according to the median forecast of 41 economists surveyed by Bloomberg News before the research group’s report Jan 21. The Commerce Department may report builders broke ground on 575,000 houses at an annual pace, up from 574,000 in November.

“The economy will stay on its recovery track, but it’s not going to be an easy or painless process,” said Julia Coronado, a senior economist at BNP Paribas in New York. “Demand for new construction is very limited.”

Fewer firings, rising stock prices and Federal Reserve efforts to keep short-term interest rates low propelled the advance in the leading index and make it more likely consumers will keep spending. Housing starts, which jumped 24 percent from April to July as builders rushed to satisfy buyers taking advantage of a government credit, will probably cool in coming months until demand reemerges.

The Standard & Poor’s 500 Index rose 1.8 percent last month, capping a 65 percent gain from a 12-year low on March 9 through December. The index is up 1.9 percent so far this month.

The rebound is helping repair the damage from the record $17.5 trillion plunge in household net worth since the recession started at the end of 2007 through last year’s first quarter.

Fewer Firings

Job losses are slowing. First-time claims for unemployment benefits averaged 460,000 a week in December, down from 481,000 the previous month. Claims peaked at 674,000 in late March 2009. The economy lost 85,000 jobs last month after adding 4,000 in November, according to Labor Department data.

Some companies are beginning to hire again. Starwood Hotels & Resorts Worldwide Inc., based in White Plains, New York, said Jan. 12 it plans to add about 6,000 jobs in the U.S. this year.

“After a year of hunkering down and cutting costs, companies are driving their top line again,” Frits van Paasschen, Starwood’s president and chief executive officer, said in a statement.

Americans will spend more in 2010 than previously estimated, economists surveyed this month by Bloomberg said. Purchases will grow 2 percent this year, the first gain since 2007 and up from a December estimate of 1.8 percent, according to the median forecast of 60 economists polled. The U.S. economy, the world’s largest, will expand 2.7 percent, the best performance in four years, the survey showed.

Housing Slows

Housing may be one area where Americans will be more circumspect. Sales of new houses dropped 11 percent in November, the month the government’s $8,000 tax credit for first-time buyers was due to expire.

President Barack Obama on Nov. 6 extended the incentive and expanded it to include current homeowners in a bid to boost demand. The extension allows closings to occur by the end of June as long as contracts are signed by the end of April. Still, the measure may have pulled sales forward and could result in fewer purchases in coming months.

Building permits, a sign of future activity, may have dropped 1.5 percent to a 580,000 annual pace in December, the Commerce Department’s Jan. 20 report on housing starts may show, according to the survey median.

Slump from Record

At a 574,000 pace in November, housing starts were down 75 percent from the record 2.27 million reached in January 2006.

A report on Jan. 19 may show builders were less pessimistic this month. The National Association of Home Builders/Wells Fargo confidence index probably climbed to 17 from a six-month low of 16 in December, economists surveyed said. It would be the first gain in four months. Readings less than 50 signal that most respondents view conditions as poor.

A measure of wholesale prices will show the economy is improving without igniting inflation. Producer prices in December were unchanged after a 1.8 percent gain the prior month, according to the survey median before a Jan. 20 report from the Labor Department. Excluding food and energy, prices rose 0.1 percent, economists forecast.

Finally, a Fed survey may show manufacturing in the Philadelphia region grew at a slower pace in January after expanding by the most in more than four years the prior month, economists estimated before that Jan. 21 release.