Index suggests growth will falter
A measure of the economy’s outlook fell more than forecast in June, pulled down by a slump in building permits that signals housing will remain the biggest drag on growth.
The Conference Board’s index of leading economic indicators declined 0.3% after rising a revised 0.2% in May, the New York-based research group said Thursday.
Fed Chairman Ben S. Bernanke acknowledged in testimony before Congress this week that the decline in home construction would continue to hinder economic growth. Increasing exports are sustaining an expansion in manufacturing that will help prevent the economy from slowing more as consumer spending slows.
“It signals more weakness in the economy,” said James O’Sullivan, a senior economist at UBS Securities in Stamford, Conn. “Housing hasn’t bottomed yet, the underlying trend in consumer spending is still on the sluggish side and business-investment growth seems to have slowed lately.”
The leading index was forecast to fall 0.1%, according to the median of economists’ projections in a Bloomberg News survey, after an originally reported May increase of 0.3%. The index, which points to the economy’s outlook over the next three to six months, has been down in four of the first six months of 2007.
A report Thursday from the Labor Department suggests that unemployment claims this month will be positive for the leading index. The number of first-time applications unexpectedly fell by 8,000 last week to 301,000, the lowest in two months.
The reports point to “slightly sub-par growth,” said economist Douglas Porter at BMO Capital Markets in Toronto. “Housing remains in something close to a free-fall, but the rest of the economy is still hanging in there. We still haven’t seen any weakness in the job market.”
Still, some economists cautioned that jobless claims tend to be volatile during this time of year as automakers shut down plants to retool for the new model year, obscuring the underlying trend.
