Key Index, Jobless Data Point to Slower Growth

A widely watched gauge of economic activity slipped in May, the Conference Board said Thursday, suggesting that the nation’s economy is likely to cool in the coming months.

Also indicating that economic growth is losing steam, the Labor Department reported that the number of Americans filing claims for unemployment benefits climbed by the largest amount in five weeks.

“The two releases together suggest that the economy is currently enjoying sturdy growth, but growth is slowing, and will slow further in the months and year ahead,” said Mark Zandi, chief economist at Moody’s Economy.com.

The Conference Board, an industry-backed research group, said its index of leading economic indicators fell 0.6% to 137.9 in May after it declined 0.1% to 138.7 in April.

The May figure was in line with what analysts had expected. The index is watched closely because it’s designed to predict economic activity three to six months in the future.

It was the index’s third decline in six months, and the lowest figure since a reading of 136.9 in October. The drop in the index comes as gasoline prices run high, interest rates creep up and the home sales market cools.

“It does serve to confirm that the economy is slowing,” said Mark Vitner, senior economist at Wachovia Corp.

“That’s something that should come as no surprise, but we had some conflicting numbers earlier this week,” he said.

Vitner noted that Tuesday’s housing construction figures from the Commerce Department gave some market watchers a false sense of optimism. The department reported that builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, a better-than-expected 5% gain from April, when construction had fallen 5.5%.

Seven of the 10 indicators that make up the leading index decreased in May. The biggest negative contributor was average weekly initial claims for unemployment insurance, followed by consumer expectations, real money supply, average weekly manufacturing hours, building permits, stock prices and vendor performance.

Over the last six months, the biggest negative contributor to the leading index’s drop has been declining housing permits.

Three indicators improved in May -- manufacturers’ new orders for nondefense capital goods, manufacturers’ new orders for consumer goods and materials and interest rate spread.

Moody’s Zandi expects June’s index to be a bit more upbeat because the stock market is somewhat firmer than it was in late May and initial claims for unemployment insurance seem to have stabilized.

The Labor Department’s report showed that 308,000 people filed for jobless benefits last week, a bigger-than-expected rise of 11,000 from the previous week.