Reports Hint at Faltering Economy

A surprise drop in regional factory activity reported Thursday suggested that the U.S. economy might be losing momentum faster than most economists anticipated.

The sluggishness was also seen in a forward-looking economic gauge that hit its lowest level in nearly a year.

In the regional factory report, the Philadelphia Federal Reserve Bank said its business activity index tumbled to -0.4 in September from 18.5 in August, far below Wall Street economists’ consensus forecast for a reading of 14.8. It was the first time the index had fallen below zero since April 2003. When the index turns negative, it means manufacturing is declining.

Even though the report’s weakness clashed with signals from some other recent regional economic data, “generally the Philly data has the best correlation with industrial production of all the regional indices, so it needs to be treated seriously,” said Alan Ruskin, chief international strategist with RBS Greenwich Capital.

If the economy is cooling, inflation pressures may also be subsiding, said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis. The trend suggests that “the Fed will probably hold rates steady for the foreseeable future and could perhaps cut interest rates early next year,” he added.

Another report showed that the number of U.S. workers filing new claims for jobless benefits rose slightly last week.

First-time claims for state unemployment insurance benefits rose to a seasonally adjusted 318,000 last week from an upwardly revised 311,000 in the prior week, the Labor Department said.

The New York-based Conference Board said its index of leading economic indicators fell 0.2% to 137.6 in August -- the lowest since October 2005 -- after a downwardly revised 0.2% fall in July. It was the fourth decline in the last five months.

The Conference Board said the drop in its leading index signaled modest economic growth this fall and probably through the holiday season and into the winter.

A fourth report helped fill out a picture of a slowdown. The Chicago Federal Reserve Bank said its gauge of national economic activity fell to -0.18 in August from an upwardly revised -0.07 in July, weighed down by weaker production and employment indicators.