Leading Indicators Slightly Bullish

The Conference Board's Leading Indicators Index (LEI) broke above 100 and charted its first 6-month increase since July 2007. But is this a sign for rejoicing? Not quite.

Though scores above 100 are considered to signal expanding conditions, the LEI is just at 100.2. This is indicative more of stabilization than growth. Furthermore, consumer expectations and building permits contributed to the increase, both of which are a bit suspect.

Improvements in both the Conference Board's and the University of Michigan's consumer confidence surveys have been driven by greater optimism over future conditions. These increases were likely aided by the improving stock market. Should the markets stall as friends and neighbors lose jobs, sentiment is likely to falter. Plus, the confidence surveys don't always align with actual spending.

Building permits, as my colleague Dirk van Dijk pointed out earlier this week, are problematic. Inventory is the biggest problem facing the housing industry; as foreclosures continue to rise, more supply will be added. The best way to cut down on inventory levels is to stop producing as much, but judging by housing starts and permits, some homebuilders don't seem to grasp this concept.

Still, the June LEI adds to the growing amount of data pointing towards a slower rate of economic deterioration. We have yet to reach stabilization, but we are moving in that direction, which is a good thing.

Investors therefore need to consider stocks that could benefit from a shift towards an early economic recovery that is marked by high levels of unemployment. Names to consider include AutoZone (AZO - Analyst Report), DeVry (DV - Analyst Report), International Business Machines (IBM - Analyst Report), National Semiconductor (NSM - Analyst Report) and Weatherford International (WFT - Analyst Report).

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