Reports: Outlook improves, but vulnerabilities remain

Recent metrics are heralding near-term improvements for the U.S. economy, but experts caution that it still remains “vulnerable” as well.

Recent metrics are heralding near-term improvements for the U.S. economy, but experts caution that it still remains “vulnerable” as well.

The Conference Board’s Leading Economic Index (LEI) for the U.S. increased 0.9%, which follows a 0.1% increase in September and a 0.3% increase in August.

That LEI increase, according to Ataman Ozyildirim, one of the board’s economists, is largely due to the sharp pick up in housing permits and suggests that the risk of an economic downturn has receded.

“Improving consumer expectations, stock markets, and labor market indicators also contributed to this month’s gain in the LEI as did the continuing positive contributions from the interest rate spread,” he explained.

“The LEI is pointing to continued growth this winter, possibly even gaining a little momentum by spring,” added Ken Goldstein, another of the group’s economists. “The lack of confidence has been the biggest obstacle in generating forward momentum, domestically or globally. As long as it lasts, there is a glimmer of hope.”

Fannie Mae’s Economics & Mortgage Market Analysis Group measured improvements as well. After nearly stalling out in the first half of the year, the U.S. economy saw some improvement during recent months, the firm noted – expanding at a 2.5% annualized rate in the third quarter while gains in recent employment data helped confirm that the economy will skirt recession this year.

Nevertheless, the U.S. continues to remain vulnerable to shocks, including the ongoing financial crisis in Europe, particularly in Greece and Italy, and the debate over fiscal policy in the U.S. – both of which indicate a slower economic growth path in 2012, noted Doug Duncan, Fannie Mae’s chief economist.

Moreover, it appears likely that Europe will slip into a recession, he said – the degree of which will have an impact on the pace of growth for the U.S. in the coming year.

As a result, Fannie Mae expects 2011 existing home sales will change little from 2010, with 2012 existing home sales only slightly higher.

“Despite a small numerical pickup in housing activity, the housing market continues to be essentially flat and we do not expect the recent uptick to be a sustained trend,” Duncan said.

“Consumer sentiment is in a holding pattern at depressed levels. In turn, the likelihood of positive developments in the housing market remains a concern,” he added. “Any sustained growth will depend on a pickup in employment and consumer confidence and spending.”

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