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Follow on Google News | Vantage National Leading Economic Index Indicates Challenges For Commodity-Intensive BusinessesEconomy should gain steam by early third quarter as companies add jobs more aggressively
By: McKinsey Development These key trends emerge from the latest Vantage Economics National Leading Economic Index (LEI), which projects near-term economic activity that businesses use to make accurate risk-based management decisions. The Vantage Economics LEI rose for the fifth consecutive month in March, indicating that the U.S. economy will continue to grow through mid-summer, likely gaining steam as key indicators like job gains improve. March’s Vantage National LEI was 1.29, up from February’s revised estimate of 1.19. Contrary to what others see as the onset of another recession and despite the slowdown in first quarter activity, Vantage Economics does not agree that the economy will enter into a recession any time soon. “We see cash flow management being particularly difficult for commodity-intensive businesses for the foreseeable future,” said Vantage founder and lead economist John Stewart. “Using this type of data can help firms manage cash flow, both by forecasting internal data as well as understanding how general economic events will impact things like cash flow, margins, and profitability. This helps companies better manage these risks, which can be the difference between staying in business and filing for bankruptcy.” The Vantage LEI’s current upward trends indicates that growth will accellerate in the second half of the year, reversing a trend—foreshadoweed by the Vantage LEI—that saw a sluggish first quarter. “The weakening we saw in our national LEI in September 2010 allowed us to forecast a fairly significant slowing in first quarter 2011 Gross Domestic Product growth, which is in fact what occurred,” Stewart continued. “The current LEI data suggests weak yet better growth for the second quarter, followed by stronger growth in the last half of 2011. We don’t see a burst of growth, but rather a continued mild recovery in activity.” Hangover effects from the first-quarter slowdown will help suppress near-term growth, the Vantage analysis shows. “We anticipate some struggles over the next two months for jobs, which will keep economic growth a bit slower than we would like,” Stewart explained. “However we expect this to ebb at the end of the second quarter to early part of the third quarter as firms begin hiring more aggressively.” That is not to say risks are not apparent in the economy, Vantage noted. Chief among these are the stability of the financial system itself, inflation and its potential impact on both consumption and business spending, and finally the fiscal issues of all levels of government. Developed to help predict economic conditions, the Vantage LEI is calculated at a national level and for all 50 states. As a leading indicator, it projects expected economic activity for the next two to five months. A value above 0 indicates economic growth and a value below 0 indicates stabilization or contraction. Vantage Economics works diligently to develop and leverage forward-looking economic analyses to specifically address the budgeting, financing, and forecasting needs of businesses. By focusing on leading indicators, slowdowns are anticipated and the relative risk of an event, such as concerns about entering a recessionary cycle, can be managed and mitigated. Although the National LEI depicts conditions according to national average, much still depends on geographic location, with the Vantage State Leading Economic Indicators show significant growth differences across states. For more information, visit our website at www.vantageeconomics.com. # # # About Vantage Economics: The right information can help businesses avoid risk. Vantage Economics (www.vantageeconomics.com) End
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