Key Barometer Signals Deeper US Gloom

Source : The Business Times, August 22, 2008

Slide in Conference Board's widely-watched index is much more than a Wall St consensus estimate

(NEW YORK) In a sign of further US economic unravelling, the index of leading US economic indicators plummeted 0.7 per cent in July to the lowest level in nearly four years.

The Conference Board's index, a key forecasting gauge of the US economy, fell to 101.2, the lowest since it was 100.7 in October 2004.

The influential private business group's economic indicator was pushed lower by declines in the stock market, drops in new building permits and rising unemployment.

The fall in the indicator is also much more than the consensus estimate of a 0.2 per cent decline by Wall Street economists surveyed by Thomson/IFR.

The last time the index of leading US economic indicators showed a drop this great was last August, when it fell by one per cent.

The index points to the direction of the economy over the next 3-6 months. In the last six months, the index has risen only once - by 0.1 per cent in April. It also has fallen 0.9 per cent over the same time period, the board said.

A separate report showed manufacturing in the Philadelphia region shrank in August for a ninth month.

The numbers are 'consistent with the weak economy right now, probably an economy in recession', James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.

The index was forecast to decline 0.2 per cent, according to the median of 63 economists in a Bloomberg News survey, after an originally reported drop of 0.1 per cent in June. Estimates ranged from a decline of 0.9 per cent to a gain of 0.1 per cent. Sagging orders and falling sales hurt factories in the Philadelphia region this month, a report from the Federal Reserve Bank of Philadelphia showed.

Its general economic index rose to minus 12.7 from minus 16.3 in July. Negative readings signal a decline. The measure averaged 5.1 last year.

The leading index decreased at a 1.8 per cent annual pace over the past six months. A decline of around 4-4.5 per cent at an annual pace is one signal that a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 per cent pace.

Five of the 10 indicators in yesterday's report subtracted from the index, led by declines in building permits and stock prices.

Housing subtracted 0.53 percentage point. Building permits, a sign of future construction, fell 18 per cent in July, while work began on the fewest houses in 17 years, the Commerce Department reported this week.

A 0.25 percentage point drag came from the Standard & Poor's 500 index, which averaged 1,257.3 last month, down from June's 1,341.2.

First-time claims for jobless benefits took away 0.23 percentage point from the leading index. Claims rose to an average 420,800 in July, and jumped to a six-year high earlier this month.

Earlier yesterday, a Labor Department report showed initial jobless claims fell to 432,000 - indicating that the labour market is still deteriorating.

A decline in orders for consumer goods and a drop in the money supply adjusted for inflation, which has the biggest weighting, also hurt the leading index. -- AP, Reuters, Bloomberg