Economy Still on the Mend

NEW YORK (TheStreet) -- An index of leading economic indicators that is meant to predict economic activity for the next three to six months was recently released and indicated that growth in economic activity will begin soon, but is it correct?

The Conference Board's index covers 10 indicators, ranging from interest rate spreads to consumer expectations. Six of the 10 increased in July. The overall increase in the index marked the fourth consecutive month-to-month increase and pushed the anticipated six-month growth rate to 3% through July, the highest growth rate since mid-2004.

The positive indicators in the index included interest-rate spread, average weekly initial claims for unemployment insurance (inverted), average weekly manufacturing hours, index of supplier inventories, stock prices and manufacturers' new orders for nondefense capital goods.

Of these indicators, the real driving force behind an economic recovery is initial claims for unemployment insurance. Although the pace of initial unemployment claims has been slowing, the overall unemployment rate is still extremely high while the numbers continue to fluctuate. One wonders whether companies just are unable to hand out more pick slips without significantly impacting operations or whether things are actually heading in the right direction.

The negative indicators in the index included consumer expectations, real money supply and building permits. This is a bit disturbing when considering that consumer spending constitutes nearly 70% of the nation's GDP and consumers seem to be pessimistic about the economy. If the consumer is not confident that the economy will recover, there is no incentive to spend, a behavior that will indirectly hinder economic growth.