The government's chief economic forecasting gauge jumped 1.2 percent in July - the strongest gain in more than three years, the government said Friday in a report offering hope that the economic recovery was on track despite a recent spate of weak numbers.
It was the sixth straight gain in the Commerce Department's Index of Leading Economic Indicators, which is intended to forecast economic activity six to nine months in advance. The index rose 0.6 percent in June and 0.7 percent in May.July's gain was the largest since June 1988, when it shot up 1.6 percent. Eight of the 11 forward-looking components in the index advanced, but the index was heavily influenced by strength in manufacturing.
The positive report followed a series of bad-news statistics earlier this week. The Commerce Department reported that the economy shrank a slight 0.1 percent in the April-June quarter, revising an earlier estimate that the gross national product had actually expanded a modest 0.4 percent.
Other negative signs included sharp drops in both new and existing home sales, a sector normally leading the economy out of recession, and a 0.1 percent tick down in personal income.
Friday's leading index report has been wrong in the past, however, so the string of increases, while bolstering the views of optimists, will not necessarily persuade pessimists they are incorrect.
Manufacturing, bolstered by rising export sales, has been one of the strongest sectors and that was reflected in the leading index.
The biggest positive contributor was a 6.2 percent increase in factory orders for consumer goods. That was followed by a gain in orders for new factory and business equipment and a rise in unfilled orders at factories, indicating manufacturers had more work ahead.
Other positive indicators included slower delivery times, indicating a pickup in orders; a drop in initial claims for unemployment insurance; rising stock prices; an increase in prices for raw materials, indicating increased demand, and a rise in building permits.
Holding back the index were a drop in the inflation-adjusted money supply, a decline in the average workweek and a drop in a survey of consumer optimism.