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Economic Indicators Predict Modest Growth

Source: Associated Press for The Arizona Republic

A measure of future economic activity rose in May to the highest level in four years, a sign the economy will keep growing but at a modest pace.

The Conference Board said Thursday that its index of leading economic indicators rose 0.3% last month, after a 0.1% drop in April. April’s drop was the first in seven months.

The index is now at 95.8. The last time it was higher was June 2008, six months into the Great Recession. Prior to the recession, the index routinely topped 100.

Seven of the ten components of the Conference Board’s index of leading indicators rose last month. Biggest drivers of the increase in the index were building permits, the spread between short-term and long-term interest rates, and an increase in new manufacturing orders, according to a survey by the Institute for Supply Management.

The economy “is growing modestly, neither losing nor gaining momentum,” said Ken Goldstein, an economist at the Conference Board, a business research group. “The result is more of a muddle through.”

Earlier Thursday, the Labor Department said the number of people seeking unemployment benefits dipped last week but not enough to indicate hiring will pick up.

Weekly applications for unemployment aid fell 2,000 to a seasonally adjusted 387,000, the Labor Department said. That’s down from an upwardly revised 389,000.

The four-week average, a less volatile measure, rose for the fourth straight week, to 386,250. It’s the highest level since December.

Hiring slowed sharply in April and May, raising concerns about the strength of the recovery. Employers have added an average of only 73,000 jobs per month in April and May. That’s much lower than the average of 226,000 added in the first three months of this year.

The Fed also sharply cut its forecast for growth this year. At best, it says the economy will grow no more than 2.4% for the year. And the Fed warned that growth could be as low as 1.9% — matching the dismal first-quarter annual pace.

The unemployment rate won’t fall much further from its current level of 8.2%, the Fed said. At best, it forecasts that it will drop to 8.0%.

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