Economic Update – Leading Economic Indicators Inch Up

A bright spot to kick off the Memorial Day holiday weekend, or economic fool’s gold? Time will tell, but in any case the Conference Board reported on Thursday that leading indicators of the U.S. economy posted their first rise since the summer of last year. The organization’s index of leading indicators, which is designed to predict economic activity six- to nine months in the future, rose 1 percent in April. The revised March figure was a 0.2 percent drop. Generally speaking, the index has been falling since late 2007, but according to the organization, the rate of decline has slowed down in recent months. The positive driving factors in the April increase were stock prices, interest rate spread, the index of consumer expectations, average weekly initial claims for unemployment insurance, average weekly manufacturing hours, index of supplier deliveries (vendor performance) and manufacturers’ new orders for consumer goods and materials. The next big indicator from the same source will be the release of the Conference Board’s Consumer Confidence Index next Tuesday, after the holiday. Initial jobless claims for the week ending May 16 also edged down by 12,000, to a seasonally adjusted 631,000, better than expected. Some parts of the economy are doing exactly as expected, however, such as the auto sector, which is still contributing heavily to unemployment figures, with Michigan taking the worst hits. Sears Holdings Inc., that bubble-era marriage of Sears and Kmart, surprised retail industry observers on Thursday by reporting a profit of $26 million, or 21 cents a share, for the quarter ended May 2. That return wasn’t a function of revenues, which were down 9.2 percent compared with the same quarter a year ago, or same-store sales, which were down 7.4 percent compared with last year. Rather, the company has seen higher margins and considerable cost-cutting in recent months. Gap Inc. also reported a profit during 1Q09, but it was down to $215 million, or 31 cents a share, from $249 million, or 34 cents a share, during 1Q08. Sales among the company’s three main brands point to a consumer base more interested in low prices than ever before. Same-store sales at Old Navy, the cheapest of the brands, dropped only 3 percent compared to this time last year. Gap same-store sales were down 12 percent and Banana Republic dropped 13 percent. No word from the company on whether the money they save by employing mannequins instead of models in its Old Navy commercials was an important factor in first-quarter fiscal health. Wall Street moved downward on Thursday, possibly worried about the health of the British economy, which has double pneumonia. The Dow Jones Industrial Average lost 129.91 points, or 1.54 percent, while the S&P 500 dropped 1.89 percent and the Nasdaq was down 1.89 percent.