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Indicators hint at economic rebound

A third consecutive monthly increase in a key forecasting gauge of U.S. economic activity brought about some cautious optimism Thursday that the economy may be readying for a rebound.

"It does augur well for the economy early next year," said Mark Zandi, chief economist of Economy.com. "Indications are growing that the economic downturn is near bottom."

The New York-based Conference Board said its Index of Leading Economic Indicators inched up 0.3 percent in June to 109.6 after moving 0.5 percent higher to 105.3 in May and advancing 0.2 percent in April. Analysts were expecting a 0.2 percent increase last month.

"The recovery in the leading index could indicate that the economy is poised for growth by late summer," said Conference Board economist Ken Goldstein. "There appears to be enough economic demand to end the slide in industrial production, though no strong rebound appears in sight."

The index also suggested that the service economy has yet to show signs of weakening, Goldstein said. He predicted that continued growth in that sector and some recovery in manufacturing would generate some job, income and gross domestic product growth later this year.

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

The U.S. economy has been besieged over the past year by anemic corporate earnings, plunging stock prices, massive layoffs and a downward spiral in the manufacturing sector. Federal Reserve chairman Alan Greenspan on Wednesday cautioned that the slowdown has not ended and might require yet another interest-rate reduction to revive sluggish growth. The central bank has slashed interest rates six times this year to prevent the economy from slipping into a recession.

Goldstein and others attributed the increase in the June reading to the Fed's aggressive rate-cutting campaign and other factors.

"The economy is clearly benefiting from some of the tail winds including earlier cuts in interest rates, the lower price of energy and also the forthcoming Bush tax cut has already had some positive impact on the economy," said Sung Won Sohn, chief economist at Wells Fargo & Co in Minneapolis.

The Conference Board said five of the 10 components that make up the leading indicators index increased last month: money supply, vendor performance, interest rate spread, average weekly initial claims for unemployment insurance and index of consumer expectations.

"The rise is broad-based enough to suggest there is a dim light at the end of the economic tunnel," Zandi said.

The negative contributors to the index were stock prices, building permits, average weekly manufacturing hours and manufacturers' new orders for non-defense capital goods.

Manufacturers' new orders for consumer goods and materials held steady last month.

In a separate report, the Commerce Department announced the U.S. trade deficit shrank considerably in May, as Americans scaled back on purchases of foreign-made goods and exports increased. The trade imbalance fell by 11.4 percent, to $28.3-billion, the lowest level since January 2000, when the deficit stood at $26.4-billion.

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