January 20, 2005--The Conference Board, an economic research group in New York, announced today that the leading economic indicator for December was 115.4, up 0.2% from November. For the last six months of 2004, however, the indicator was down 0.9%, thanks to a five-month slide between July and October.
Consumer's expectations for the next six months weighed the heaviest on the index, which is comprised of 10 individual economic indicators, four of which improved in December. Consumer expectation improved 11% in December, according to the Conference Board's Consumer Confidence Index released late last month.
December's stock market rally helped as well. The Dow Jones Industrial gained 3.43% last month, ending the year at 10.783.01. Over the entire year, the Dow was up slightly less, 3.16%.
The money supply grew fractionally in December, but improved more than 6% for the year, reported the Federal Reserve. An increase in the money supply indicates that more money is available for loans, said Jay Bryson, Wachovia Corporation's Global Economist.
"If there is more loan growth now, that is going to help economic growth within the next few months-- in the sense that businesses are borrowing for expansion projects," said Bryson.
Fewer people initiated unemployment insurance in December, a boost for the leading economic indicator. For the week ending December 25, 5,000 fewer people claimed unemployment insurance, reported the Department of Labor.
The negative contributors were vendor performance, interest rate spread, manufacturers' new orders for non-defense capital goods, building permits, and manufacturers' new orders for consumer goods and materials. The average weekly manufacturing hours held steady for the month.
While an improved leading indicator is good news, it means less today than it used to, said Bryson.
"It appears that the relationship between the leading economic indicator and economic growth is starting to breakdown," said Bryson. He added: "Over the course of the summer the leading economic indicator went down five consecutive months and we really haven't seen much of a weakening in the economy. People are starting to pay less and less attention to this indicator."