Economic Indicators Decline Again
The index of leading U.S. economic indicators fell for a third consecutive month in August, the longest negative streak since early 2003, suggesting slower growth amid rising oil prices.
The report Thursday by the New York-based Conference Board may weaken President Bush’s claim that the economy is improving, although it does not suggest a recession is coming, analysts said. Federal Reserve Chairman Alan Greenspan and other policymakers said Tuesday that the economy was “regaining some traction” after slowing in the second quarter.
Fed policymakers also said the slowdown would be short-lived as they voted unanimously Aug. 10 to raise interest rates, according to minutes of that meeting, released Thursday. Fed policymakers in that meeting also cited a need for “significant cumulative policy tightening” to restore interest rates to a level that would foster growth without inflation.
However, based on the latest leading indicators, “there is concern about weak consumption and the pace of wage and salary increases,” said Ken Goldstein, an economist at the Conference Board, a private research group. “Consumers worry about their wages and salaries, which could limit spending.”
The 0.3% decline in the gauge of how the world’s largest economy will perform over the next three to six months matches the July drop and follows a 0.1% decline in June. Oil prices reached a record in August, and job growth slowed from earlier this year, restraining incomes, consumer confidence and the appetite to spend.
“We doubt this signals an imminent further sharp downturn in growth, but the data make uncomfortable viewing and are not consistent with the Fed’s view that the economy is regaining traction. Where?” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
In a separate report, first-time jobless claims rose last week for the fourth time in five weeks, the Labor Department said.
The number of workers filing new claims for jobless benefits rose to 350,000 last week, the department said, linking most of the increase to hurricanes Charley and Frances. Last week’s number is close to the 344,000 average for the year and consistent with increased hiring as demand recovers from a midyear lull, economists said.
Economists had forecast a 0.2% decline in the leading index for August, based on the median of 59 estimates in a Bloomberg News survey. The initial claims for jobless benefits exceeded the forecast of 335,000.
The index of coincident indicators, a gauge of current economic conditions, rose 0.2% for a second month. The index tracks payrolls, incomes, sales and production. The index of lagging indicators fell 0.1% in August, compared with a July rise of 0.6%.
The three months of contraction in the leading index isn’t a sign of an impending recession, Goldstein said. An annualized decline of 3.5% or more in the index over six months would be a more accurate recession signal, and that has not been met, he said. The index fell 0.2% at an annual rate in the six months ended in August.
Six of the 10 indicators that the Conference Board tracks to derive the index contributed to the decline in August: the yield curve, building permits, stock prices, consumer expectations, supplier deliveries and orders for business equipment. Factory hours were unchanged. Initial jobless claims, orders for consumer goods and money supply made positive contributions.
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Hint of slowdown
Index of leading economic indicators, seasonally adjusted 1996=100
August: 115.7
