Leading indicators signal recession's end

NEW YORK - The recession will end this summer, if it hasn't already, a research group's measure of employment, stocks and other indicators suggests.

The Conference Board said Thursday that its index of leading indicators rose 0.6 percent in July, its fourth straight gain. The measure is meant to project economic activity in the next three to six months.

The indicators suggest the recession has bottomed out, and growth in economic activity will begin soon. Gross domestic product, which has shrunk for four straight quarters, could grow this quarter, said Ken Goldstein, the Conference Board's economist.

"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note. The National Bureau of Economic Research, which officially calls the beginning and end of economic cycles, has in the past set an end-date to recessions after several consecutive months of gains in the leading indicators, he said.

But even when the downturn is over, "it's still going to feel like a recession to the average consumer, the average business," Goldstein said.

The U.S. likely saw economic growth early in the current July-September quarter as the Cash for Clunkers program boosted auto sales, said Jennifer Lee, economist with BMO Capital Markets.

An accompanying index meant to measure the current state of the business cycle was flat in July, after dropping for eight straight months, the Conference Board said. Meanwhile, the six-month growth rate rose to 3 percent through July, up from 2.1 percent through June. That's the highest growth rate since mid-2004, the Conference Board said.

However, July's 0.6 percent growth was slower than the 0.8 percent rise in July and 1.2 percent gain in May. Economists polled by Thomson Reuters had expected the indicators to rise 0.7 percent last month.

Six of the 10 indicators that comprise the index increased in July, including employment data and stock prices.

The biggest gainer was the "interest rate spread," the difference between yields on 10-year Treasurys and the federal funds rate, which the Federal Reserve is keeping at a record low near zero.

The funds rate is the interest banks charge each other for loans. A big difference between it and the 10-year Treasury is viewed as positive because investors are willing to lend for longer periods.

Consumer expectations hindered growth in the Conference Board index last month more than any other factor. Job losses and worries about making mortgage payments continue to weigh on spending by American shoppers, which power 70 percent of the U.S. economy.

Many private economists and the Fed expect the unemployment rate to hit double digits by next year. The jobless rate was 9.4 percent in July.

The Labor Department on Thursday said the number of new jobless claims rose to a seasonally adjusted 576,000 last week from 561,000 the previous week. Wall Street economists expected a drop to 550,000, and initial claims need to fall to 325,000 or below to indicate a healthy economy.

Unemployment is exacerbating the problem in housing. Delinquencies and foreclosures hit a record-high during the second quarter, according to the Mortgage Bankers Association. More than 13 percent of American homeowners are behind on payments or in foreclosure.

That's bad for consumer spending.

"You're not going to go on vacation or buy yourself new furniture unless you're able to make your mortgage payments," said Lee. "The foreclosure problem is definitely going to be a huge overhang. The U.S. consumer is still in poor financial health."

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