U.S. Index of Leading Economic Indicators Fell 0.3% in July

Aug. 19 (Bloomberg) -- The index of leading U.S. economic indicators fell for a second month in July as factory delivery times shortened, reflecting a slowdown in orders, and stock prices declined, a private group said.

The 0.3 percent decline in the New York-based Conference Board's gauge of the economy's likely performance over the next three to six months, the biggest since February of 2003, follows a revised 0.1 percent drop in June. The index last fell in consecutive months in early 2003.

The threat to the economy from higher crude oil prices, which rose yesterday to a record, prompted a decline in the Standard & Poor's 500 Index. Rising energy costs led in the second quarter to the slowest pace of growth in more than a year.

``It's still premature to say the drop in the index is meaningful, but the risks to the economy are to the downside, mostly because of the rise in crude oil prices,'' said Jay Feldman, an economist at Credit Suisse First Boston Corp. in New York, before the report.

Crude oil futures rose to a record for a sixth straight day in New York as fighting in Iraq raised concern about the country's ability to sustain exports. A report yesterday showed falling oil inventories in the U.S.

Economists forecast a 0.1 percent decrease in the July index, according to the median of 55 estimates in a Bloomberg News survey. Forecasts ranged from an increase of 0.3 percent to a decline of 0.4 percent.

Earlier today, the Labor Department said initial jobless claims fell by 3,000 last week to 331,000. It marked the third straight weekly decline, the first time that's happened since April.

Coincident Indicators

The index of coincident indicators, a gauge of current economic conditions, rose 0.1 percent last month, compared with a no change in June. The index tracks payrolls, incomes, sales and production. The index of lagging indicators increased 0.5 percent in July after no change.

``There are growing concerns about the high cost of gasoline and milk, as well as worries about where economic growth will come from now that tax refunds have been spent and short-term interest rates are rising,'' said Ken Goldstein, an economist at the Conference Board, in a statement.

Gross domestic product, the sum of all goods and services produced in the U.S., is forecast to rise 3.9 percent at an annual rate in the current quarter and 4.1 percent in the final three months of the year, according to the median estimate of 54 economists surveyed by Bloomberg News from July 30 to Aug. 6. The economy grew at a 3 percent rate in the second quarter.

Cisco

``I think the economy is still in very good shape but it isn't growing at the same pace as before and I think the GDP numbers have shown that as well,'' said John Chambers, chief executive officer at Cisco Systems Inc., in an interview at the company's San Jose, California, headquarters.

Investors view Cisco, whose routers run 70 percent of the world's Internet traffic, as a bellwether for technology spending.

Six of the 10 indicators that the Conference Board tracks to derive the index contributed to the decline in July. In addition to quicker delivery times and lower stock prices, the leading index was pushed down by a narrower spread between the yield on the 10-year Treasury note and the federal funds rate, a decline in the money supply, more jobless claims and fewer capital goods orders.

The spread between the yield on the 10-year Treasury note and the federal funds rate narrowed to 3.24 percent in July, from 3.7 percent the month before, suggesting the economy slowed. The yield on the 10-year government note averaged 4.48 percent last month, down from 4.72 percent in June.

Supplier Deliveries

The narrowing of the spread reflects the Federal Reserve's quarter-percentage-point increase in the target for overnight loans between banks to 1.25 percent on June 30 and a drop in the yield for government debt. The yield on the Treasury's 10-year note dropped last month as payroll gains slowed and inflation moderated.

The Institute for Supply Management said earlier this month that its index of supplier deliveries, which measures how long it takes to get materials, fell to 64.2 in July from 68.1. A reading over 50 shows expansion.

The money supply adjusted for inflation, which carries the second-most weight in the index, averaged $5.81 trillion in July, compared with $5.82 trillion a month earlier. The gauge includes checking accounts, time deposits, mutual funds and other accounts from which funds can be easily accessed.

The Standard & Poor's 500 Index averaged 1105.85 in July, down from 1132.8 the month before.

Jobless Claims

The number of Americans filing initial claims for unemployment insurance averaged 343,500 a week in July, up from 336,000 in June, according to the Conference Board. The average last year was 402,100.

Among the indicators underpinning the leading index was building permits. Permits, a sign of future construction, rose 5.7 percent in July, the Commerce Department said this week. Consumer confidence, worker hours and orders for consumer goods all made positive contributions.

The University of Michigan's index of consumer expectations rose in July. The manufacturing workweek rose to 40.9 hours last month, from 40.8 in June, government data show. The manufacturing workweek averaged 40.4 hours in 2003.

Chief executives at some of the fastest-growing U.S. companies were less optimistic about the economy in June than they were in March, a private survey by BSI Global Research Inc. reported Monday.

More than half of them were concerned about ``the stability of demand'' and the number of those ``optimistic about the economy's prospects over the next 12 months'' fell to 76 percent in the second quarter from 81 percent in the first three months of the year.

``There's a lot of uncertainty right now with the presidential elections and oil prices and kind of the mixed economic indicators,'' Agilent Technologies Inc. Chief Executive Ned Barnholt said in an interview last week from Mountain View, California. ``Companies are being very cautious.''

Agilent, the world's biggest maker of scientific-testing gear, reported third-quarter net income of $100 million last week as demand for wireless-device monitoring lifted sales to their highest level in three years. Sales were up 25 percent at the Palo Alto, California-based company.

 

 

 

More Financial News