Economic indicators and survey show recession easing

Economic indicators and survey show recession easing

WASHINGTON (Reuters) — A key gauge of future economic activity fell for a third month in March, showing the recession may persist through the summer, a nonprofit research group said Monday.

"The recession may continue through the summer, but the intensity will ease," said Ken Goldstein, an economist at the Conference Board.

That view is in line with the latest quarterly survey by the National Association for Business Economics (NABE), released Monday, which indicates the economy is at an inflection point, but not quite a turning point, said Sara Johnson, lead analyst on the survey and an economist at IHS Global Insight.

The results, however, show the recession is abating, she says.

"Key indicators — industry demand, employment, capital spending, and profitability — are still declining, but the breadth of decline is narrowing," she said.

The results mirror announcements by the Federal Reserve last week that there were faint signs of hope that the economy is improving. The Fed said five of its 12 regional banks reported the pace of economic decline was moderating.

Still, the NABE survey of companies and trade associations shows 93% of respondents expect real gross domestic product to decline this year. That was worse than 78% in the January survey.

But signs are improving. In the latest survey, more companies reported rising demand for their products, while fewer reported a decline. The net rising index for industry demand — which measures the difference of those two numbers — improved to -14% in April from -28% in January. The January figure, the survey noted, was the worst since the survey began in 1982.

Net rising indexes swung from negatives to slight positives for the finance, insurance and real estate and services sectors, while demand remained depressed in transportation, utilities, information and communications.

More companies are also seeing their profit margins increase. In the latest survey, 14% of respondents said profit margins were rising, while 45% said they were falling. The rest said they were unchanged, meaning the net rising index was -30%, an improvement from January's -41%.

Capital spending — which is tied to business growth — improved as 15% of respondents reported boosting capital spending the last three months, up from 12% in January. But the majority of respondents, 54%, were leaving capital spending unchanged, and the rest — 31% — were cutting back.

Employment prospects are still down, and wages are at their lowest point since the survey began 27 years ago.

In April, 14% of companies reported employment had risen — the same as in January. But the percentage of companies reporting lower employment was 39%, down from 44%. Goods-producing industries fared worst, with 83% reporting job losses, and none reporting growth. The financial, investment and real-estate sector showed signs of stabilizing.

The outlook for jobs remains grim, with losses expected to continue the next six months. Only 16% of companies predicted an increase in hiring at their firms, slightly worse than January's 17%. But the percentage of companies predicting job losses improved to 33% from 39%.

The NABE survey of 109 members was taken March 23 through April 1.

In its report, the Conference Board said its leading economic index declined 0.3% last month, steeper than the 0.2% analysts were expecting. The index for February was better than previously reported, falling 0.2% instead of 0.4%. But it was revised lower in January to a 0.2% decline, instead of a 0.1% increase.

The index has not risen in nine months. In September and December it was unchanged; it experienced the largest drop during that period in October, when it fell 1%.

Real money supply and interest rates both improved in March, but not enough to counterbalance the drag of building permits, stock prices and supplier deliveries.

The past six months, the index has fallen 2.5%, compared with a smaller 1.4% drop the previous six months.

The Coincident Index, a measure of current conditions, fell for a third month, by 0.4%, primarily due to declines in employment and industrial production.

The Lagging Index, which provides a look backward, has been on a down trend since July 2007, the Conference Board said. Its 0.4% decline in March was caused by weakness across all components, which include duration of unemployment, inventory levels, and outstanding loans.

"There have been some intermittent signs of improvement in the economy in April, but the leading economic index and most of its components are still pointing down," Goldstein said.

Contributing: Associated Press

Copyright 2009 Reuters Limited.

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