Leading Index Drops in July on Stock Slump

The U.S. index of leading economic indicators fell in July, pulled down by stock market declines and a drop in consumer optimism, according to a report released Monday.

The Conference Board’s index, a gauge of the economy’s performance over the next three to six months, declined 0.4% last month, after falling 0.2% in June. The decline was the largest since a 0.6% drop 10 months ago, when terrorists attacked New York and the Pentagon.

Stocks gained after July’s drop in the leading indicators was smaller than expected and retailers including Lowe’s Cos. reported improved results. Lowe’s said it had a 42% rise in second-quarter profit.

Stocks contributed the most to the index’s decline in July, but they have rebounded this month and consumer confidence has leveled off. The Standard & Poor’s 500 index rose 21.93 points, or 2%, to 950.70 on Monday, the highest since July 9.

Although the recent rise in stocks and strength in retail sales are positive signs, the economy’s recovery remains sluggish.

“Economic growth in the second half will be slower than people were expecting,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Gross domestic product expanded at a 1.1% annual pace in the second quarter, down from a 5% growth rate in the first three months of the year, and an increasing number of economists expect growth to stay slow for a while.

“The latest reading was heavily skewed by a big drop in the stock market, which isn’t going down in August,” said Ken Goldstein, a Conference Board economist. “Unless the shoe drops somewhere else, we’re going to continue to muddle through.”

The leading index has fallen in three of the last four months and risen only once since February. Six of the 10 indicators tracked by the Conference Board pushed down the July index.

The New York-based research group bases its index on seven previously reported economic statistics and on estimates for three others.

In addition to falling stocks and consumer confidence, negative contributions came from a drop in factory hours worked, a decline in building permits, a narrower spread between the yield on 10-year Treasury notes and the Fed’s benchmark overnight lending rate, and faster supplier deliveries.

Positive contributors to the index were a rise in the money supply, fewer jobless claims and increased orders for capital and consumer goods.

The Conference Board’s index of coincident indicators, a measure of current economic activity, rose 0.1% last month after a 0.3% increase in June.

Changes in nonfarm payrolls, industrial production, manufacturing and wholesale sales, and personal income excluding Social Security and other transfer payments make up the index.