Index of Leading Indicators Drops 0.3%

The index of leading U.S. economic indicators fell in August for the first time since March, a decline likely to be extended by the terrorist attacks on New York and the Pentagon.

The Conference Board said Monday that its index, a gauge of economic activity for the next three to six months, fell 0.3% in August, after rising 0.4% in July.

The decline reflected fewer hours worked in factories and a decline in consumer expectations.

The economy, which expanded in the second quarter at the slowest pace in eight years, was showing no signs of picking up before Sept. 11. The attacks may cause growth to contract by damping consumer, investor and business confidence, analysts said.

“The index showed the economy was already weak before the crisis, and the attacks will now dump it into recession,” said Steven A. Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, Calif.

The economy was last in recession from July 1990 to March 1991, according to the National Bureau of Economic Research in Cambridge, Mass.

To help prevent a recession, investors are expecting Federal Reserve policy makers to lower the benchmark overnight borrowing rate to a 39-year low of 2.5% when they next meet Oct. 2, judging from trading in fed funds futures contracts. Central bankers cut the target rate on overnight loans between banks to a seven-year low of 3% last Monday.

The Conference Board compiles its leading indicators index from eight previously reported economic statistics and estimates new orders for consumer and capital goods. Seven of the 10 indicators showed weakness in August.

Analysts expected a 0.1% decrease, following the previously reported 0.3% July rise, according to a Bloomberg News survey.

Falling stock prices, faster delivery times, a narrower spread between yields on 10-year Treasury notes and the Fed’s overnight rate, a rise in jobless benefit claims and a drop in building permits also contributed to the August decrease.

Two indicators, factory orders for non-defense capital goods and orders for consumer goods, were unchanged. One indicator, an increase in the money supply, pointed to strength.

The four-month string of gains in the leading economic indicators index through July had raised expectations the economy might recover from a slowdown that began in the third quarter of last year and led to the slowest 12 months of growth in a decade. The attacks put an end to that optimism.

“There was cautious optimism a month ago that manufacturing declines might have been bottoming out,” said Conference Board economist Ken Goldstein. “In the wake of the terrorist attacks, economic demand seems likely to slow.”

The economy already might be in recession, according to a special survey of 44 economists published Thursday by the Blue Chip Economic Indicators.

The U.S. economy probably will contract at a 0.5% annual rate in the third quarter, which ends Sunday, and shrink at a 0.7% pace in the final three months of the year, the survey found.

A separate poll by the Conference Board on Friday found U.S. households divided over whether the terrorist attacks will push the economy into recession.