Plus: Leading Economic Indicators Fall, Manufacturing to Grow through 2012, Jobless Claims Decline.

Leading Economic Indicators Fall
The Conference Board’s Leading Economic Index (LEI) for the United States dropped 0.3 percent in April, following a 0.7 percent increase in March and a 0.9 percent increase in February. Last month marked the first decrease since June 2010.

“The U.S. LEI has been rising since March 2009, with only a brief one-month interruption in June 2010, and now, in April 2011,” Ataman Ozyildirim, an economist at the Conference Board, said in an announcement of the findings. “Overall, the composite indexes still point to strengthening business conditions in the near term, although the path may be uneven.”

The LEI is a weighted gauge of 10 indicators that are designed to signal business cycle peaks and troughs. In April, four of the 10 indicators included in the LEI made positive contributions, led by the interest rate spread and the index of consumer expectations and stock prices. The largest negative contributions came from weekly initial unemployment insurance claims, supplier deliveries and building permits.

For the six months through April, the LEI gained 3.5 percent, up from 1.4 percent in the prior six months.

“The economy has been growing moderately and delivering some new jobs,” according to Ken Goldstein, an economist at the Conference Board. “Economic growth will likely continue through the summer and fall, but the pace of economic activity may be choppy.”

Manufacturing Growth to Outpace Overall Economy
Manufacturing continues to grow at a steady pace thanks to strong performance for durable goods and equipment purchasing, but concerns over mounting energy prices and a range of government cutbacks may slow the overall economy, according to the Manufacturers Alliance/MAPI’s latest Quarterly Economic Forecast.

MAPI forecasts that inflation-adjusted U.S. gross domestic product (GDP) will rise by 2.7 percent in 2011 and 2.9 percent in 2012, a downgrade from the 3.2 percent growth and 3 percent growth projected for 2011 and 2012, respectively, in the previous quarter.

“The economy is continuing to grow at a moderate pace with consumer durable goods, business equipment and exports leading the way,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said. “Rising oil prices and government austerity at all levels, however, give pause to any excessive optimism.”

Manufacturing production is expected to outpace growth in the overall U.S. economy, climbing 6.2 percent in 2011 and 4.2 percent in 2012. In addition, manufacturing employment is forecast to make major gains, adding 288,000 jobs in 2011 and 374,000 jobs in 2012. Much of the growth will be fueled by high-tech manufacturing production, which is expected to increase by 15 percent in 2011 and 12.3 percent in 2012. Despite these positive signs, there are some causes for concern.

“The manufacturing recovery is solid but it has only regained half of its losses since the depths of the recession in 2007, when it fell 20 percent at its trough,” Meckstroth explained. “On the positive side there is some employment growth, a need to replace and repair business equipment, and the falling dollar makes the United States competitive in supplying equipment to emerging countries for infrastructure projects. On the downside, federal, state and local government spending has shifted into a restraint mode, and high oil and commodity prices pose a risk.”

Jobless Claims Fall More than Expected
New initial jobless claims fell sharply in the latest week reported, marking the second consecutive week of declines following a major uptick in jobless figures. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending May 14 decreased by 29,000 to 409,000, down from the previous week’s revised total of 438,000. The four-week moving average, however, rose by 1,250 to 437,750.

The decline in jobless claims exceeded expectations, as economists polled by MarketWatch had forecast claims to drop to a seasonally adjusted 424,000. Jobless claims have fluctuated severely in recent months, swinging from a three-year low of 375,000 in February to as high as 478,000 in late April.

“The volatility in new claims has made it harder for economists to figure out the direction of the U.S. labor market, though other data, such as the monthly employment report, have shown that businesses are hiring at the fastest pace in five years,” MarketWatch explains. “Government officials said several one-time factors that often crop up in the spring, such as the Easter holiday and spring break for schools, have distorted the data. As a result, most economists have been expecting the run-up in claims to subside.”

Economists generally view the U.S. as adding more jobs than it is losing when weekly jobless claims drop below 400,000. Despite hitting a five-year peak in hiring, the latest data indicate that companies are not adding jobs quickly enough to shrink the overall unemployment rate, which rose to 9 percent in April.

SMEs Set to Drive U.S. Economy
Traditionally, small and midsized enterprises (SMEs) are the first to suffer and the first to recover from a recession — reflecting their vulnerability to economic downturns, as well as their nimbleness to adapt quickly and take advantage of a recovery. However, that maxim did not hold true this time around due to the strong presence of SMEs in a number of hard-hit industries, such as construction and services, and greater reliance on real estate as collateral.

Fortunately, there are growing signs of improvement on a number of fronts, according to TD Economics.

As sales begin to pick up and job growth in the services industry accelerates, small and midsized enterprises (SMEs) are set to resume their role as a major driver of the U.S. economy, TD Economics said in a special report released last week.

Moreover, many U.S. small businesses are looking beyond traditional export markets like Canada and Mexico to emerging markets for growth opportunities, a phenomenon the study’s authors expects will continue in the coming years.

“Some SMEs are already seizing on these opportunities by gaining a foothold in high-growth countries in emerging Asia, but certainly the potential to expand further exists,” the report states.

“All told, the last several years have been a trial by fire for many SMEs. But, the resiliency of small and medium-sized businesses has been a key strength of America’s economy,” the report continues. “The next few years will mark a new phase for the U.S. economy, characterized by accelerated job growth and increased opportunities for small and medium-sized businesses.”