Measure of economy's future health posts fourth monthly increase, rising 0.5 per cent in May

Photo: The Canadian Press. All rights reserved.

This Wednesday, May 14, 2014 photo taken with a fisheye lens shows a new home under construction in Riverview, Fla. The Conference Board reports on its index of leading economic indicators for May on Thursday, June 19, 2014. (AP Photo/Chris O'Meara)

WASHINGTON - A gauge designed to predict the economy's future health increased for a fourth month in May, providing further evidence that the economy is gaining strength after a harsh winter caused activity to go into reverse.

The Conference Board said Thursday that its index of leading indicators increased 0.5 per cent last month, an improvement from a revised 0.3 per cent gain in April. The strength was broadly based with positive contributions from all the financial and labour components of the index.

"Recent data suggest the economy is finally moving up from a 2 per cent growth trend to a more robust expansion," said Conference Board economist Ken Goldstein. "Going forward, the biggest challenge is to sustain the rise in income growth which will drive consumption."

The overall economy actually shrank at an annual rate of 1 per cent in the January-March quarter, the victim of a severe winter which crimped activity in a number of areas.

But analysts believe growth rebounded strongly in the April-June quarter to possibly as much as a 4 per cent growth rate. They are forecasting a solid performance in the second half of around 3 per cent growth.

The expectation is that rising employment will fuel further gains in consumer spending.

The leading index is composed of 10 forward-pointing indicators. For May, seven of the 10 showed gains with the largest positive contributions coming from low interest rates, falling weekly unemployment claims and gains in manufacturing hours.

The biggest negative factor holding the index back was a drop in applications for building permits.