Leading indicators fall
NEW YORK (AP) – A closely watched gauge of future business activity fell in August for a third consecutive month, evidence that companies and consumers continue to navigate an uncertain economic climate. Meanwhile, more Americans filed new claims for unemployment benefits last week following the hurricanes that hit Florida.
The Conference Board said Thursday its Composite Index of Leading Economic Indicators fell 0.3 percent in August to 115.7, following a decline of 0.3 percent in July.
The August reading was the third month of decline in the index, after more than a year in which it gained steady ground. The drop last month was larger than the 0.2 percent decrease forecast by analysts.
Economists said the August report confirms a slackening in the recovery dating back to the late spring. Three consecutive months of a decline in the index generally are considered to mean the economy is weakening.
“Consumers worry about their wages and salaries which could limit spending. Businesses worry about their ability to raise prices and to cover rising costs,” said Ken Goldstein, an economist for the New York-based Conference Board, a private research group.
While the new reading is cause for concern, it comes as other evidence shows the economy is growing at a modest pace, others said.
“It looks like the softness in the leading index is sort of a caution flag on the economy, but its not a red flag at this point,” said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis.
The index is closely followed because it is designed to forecast the economy’s health over the coming three to six months.
Federal Reserve policymakers cited an overall steadying in the economy when they raised a key interest rate earlier this week, the third such hike this year. The Fed’s campaign of gradual increases reflects its efforts to navigate through a soft patch in the business cycle and return the cost of borrowing to historical norms.
The economy appears to have “regained some traction and labor market conditions have improved modestly,” the Fed said in announcing the rate hike.
The new leading indicators report provides something of a counterweight to the Fed’s measured optimism, but not enough to cause much worry among economists.
“I don’t think the economy, certainly the consumer-related sector of the economy, is out of the soft patch,” said economist Sung Won Sohn of Wells Fargo & Co. in Minneapolis. “We are counting on business spending … to pick up the slack. And so far, I think the early indicators are that businesses are doing exactly that, and for that reason I don’t think we’re in any danger of slipping into a recession.”
Also Thursday, the Labor Department reported that the number of Americans filing new claims for unemployment insurance rose by a seasonally adjusted 14,000 to 350,000, mostly as a result of the hurricanes that hit Florida. That left claims at higher than the 338,000 applications that some analysts were forecasting. But they remain lower than for the same week last year, when claims were at 387,000.
The nation’s payrolls picked up in August, expanding by 144,000, the most since May. Still, the economy is down a net 913,000 jobs since President Bush took office in January 2001.
Stocks were mixed following release of the reports. In midday trading, the Dow Jones industrial average fell 47 points to 10,062. The Standard & Poor’s 500 index was down 2 points at 1,112, and the Nasdaq composite index gained about 8 points to 1,893.
In its report, the Conference Board said seven of the 10 indicators that make up the index declined in August. They included interest rate spread, building permits, the index of consumer expectations, manufacturers’ new orders for nondefense capital goods, vendor performance and stock prices.
The components that rose were manufacturers’ new orders for consumer goods and materials, real money supply and average weekly claims for initial unemployment.
While the weakness in the leading index has broadened, the three-month decline has “not been long enough nor deep enough to signal an end” to the overall trend of increases going on since March of last year, the Conference Board said in its report.
The index of coincident indicators, which measures the current economy, rose 0.2 percent in August to 117.8, with all four of its components increasing, after an identical increase in July.
The index of lagging indicators, which looks back at the past six months, declined 0.1 percent in August to 98.2, with four of its seven components rising.
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AP-ES-09-23-04 1420EDT