Friday, August 20, 2004

Leading US economic indicators drop in July

NEW YORK (AP) - Offering more evidence that the nation's economic recovery is losing steam, a closely watched gauge of future business activity fell in July for the second consecutive month.

The Conference Board said Thursday that its Composite Index of Leading Economic Indicators dropped by 0.3 percent in July to 116.0, following a revised decline of 0.1 percent in June.

Last month was the first time in more than a year that the index had lost ground, and the July decline was larger than the 0.1 percent dip forecast by analysts.

The index is closely followed because it is designed to forecast the economy's health over the coming three to six months.

Economists said the new reading, taken together with a mixed batch of other recent data, points to slower growth in the months ahead.

"When the economy is growing at sort of a moderate, modest pace, you'll get indicators pointing in opposing directions and it seems like that's what we've been seeing in recent months,'' said Patrick Fearon, an economist with A.G. Edwards & Sons in St. Louis.

"This is all just consistent with growth having slowed to pretty much an average pace.''

Ken Goldstein, an economist with the Conference Board, said the continued decline in the index reflects the effect that a host of factors - from energy prices to worries about terrorism - are having on the economy.

"The latest decline in the Leading Index reflects a loss of forward momentum,'' Goldstein said.

"There are growing concerns about the high cost of gasoline and milk, as well as worries about where economic growth will come from now that tax refunds have been spent and short-term interest rates are rising.''

The New York-based Conference Board said six of the 10 indicators that make up the index declined in July.

They included vendor performance, the interest rate spread, stock prices, average weekly initial claims for unemployment insurance, real money supply and manufacturers' new orders for nondefense capital goods.

The Labor Department reported Thursday that the number of Americans filing new claims for unemployment insurance dipped by 3,000 to 331,000 last week.

That marked the third consecutive week of decline in claims.

The four-week moving average of claims, which smooths out fluctuations in the often-volatile figures, fell to 337,000 from 339,500 in the previous week.

Components of the Leading Indicators index that rose were building permits, the index of consumer expectations, average weekly manufacturing hours and manufacturers' new orders for consumer goods and materials.

The decline in the index means there is less wind in the economy's sails.

But some of the factors driving down the index are temporary, leaving open the question of whether it points to anything more than a moderation of growth, said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania.

"There is a little bit of weakness out there, and one month doesn't tell us we've made a turn,'' he said.

The index of coincident indicators, which measures the current economy, rose 0.1 percent in July to 117.5, with all four of its components also rising, after remaining steady in June.

The index of lagging indicators, which looks back at the past six months, rose 0.5 percent in July to 98.3, after coming in flat in June.

Stocks finished lower following release of the reports.

The Dow Jones industrial average lost 42.33 to 10,040.82.

The Nasdaq composite index was down 11.48 to 1,819.89.

The Standard & Poor's 500 index fell 3.94 to close at 1,091.23. - AP

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