Aug Indicators Point To Storms Ahead

Source : The Business Times, September 21, 2007

LATEST US DATA

(WASHINGTON) The index of leading US economic indicators fell in August by the most in six months reflecting lower consumer confidence and a rise in claims for unemployment insurance.

The Conference Board's gauge declined 0.6 per cent, more than forecast, after a 0.7 per cent July increase that was bigger than previously reported, the New York-based group said yesterday. The measure points to the direction of the economy over the next 3-6 months.

The index highlights concerns that the economy may be in danger of stalling as a real estate slump, tougher lending standards and a flagging job market threaten consumer spending. Harder-to-get credit 'has the potential to intensify the housing correction, and to restrain economic growth more generally', the Federal Reserve said as it lowered interest rates this week.

'Leading indicators are saying there are more storms ahead for the economy,' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd in New York, who correctly forecast the decline in the leading indicators index. 'The credit crunch in August appears to have spilled over to the real economy, and this means the outlook is less positive today.'

The index was forecast to fall 0.4 per cent, according to the median of 59 economists' projections in a Bloomberg News survey. Estimates ranged from a 0.8 per cent decline to a one per cent gain.

The Fed on Tuesday lowered its benchmark interest rate by a half-point to 4.75 per cent - the first reduction in four years.

'Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time,' the Fed's Open Market Committee said in a statement after meeting in Washington.

Former Federal Reserve chairman Alan Greenspan said that even after the Fed's action, the odds of a recession remain 'somewhat more' than one-in- three, with home prices likely to drop further and hurt consumer spending.

'Remember, we still have a problem out there, which is a large overhang of unsold newly constructed homes,' Mr Greenspan said in an interview yesterday following the publication of his book, The Age of Turbulence. Home prices 'are down only about 3 per cent but they are clearly moving lower'.

A 0.22 percentage point subtraction in the leading indicators came from the Reuters/University of Michigan consumer expectations gauge, which fell to a 12-month low during August. -- Bloomberg