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Index of Leading Indicators Falls

Economy: Conference Board's gauge of strength drops 0.2% in August, posting its third straight monthly decline.

September 24, 2002|From Times Wires Services

A key index fell in August for the third straight month, indicating that the U.S. economy probably will continue to sputter in the next few months.

The Conference Board's index, which uses previously reported statistics to gauge the economy's strength, dropped 0.2% in August after falling a revised 0.1% in July and 0.2% in June.

Wall Street economists had predicted a 0.1% decline in August, but rising claims for unemployment insurance and weak consumer confidence weighed down the index.

"There is a danger that this weak recovery could stall, especially if the consumer market starts to slow," said Ken Goldstein, an economist who compiles the report for the New York group.

Stock market declines and a decrease in second-quarter household net worth suggests spending will cool.

The report Monday came a day before Federal Reserve policymakers are expected to leave interest rates unchanged. A majority of the so-called primary dealers expect the Fed to hold the overnight bank rate at a 41-year low of 1.75% for the remainder of the year, according to Bloomberg News.

The Conference Board collects 10 leading economic indicators from unemployment claims to capital spending. Seven of those statistics were bearish Monday, showing that the growth that was evident earlier this year had slowed.

Sluggish growth may continue for several more months as companies hold off on ordering new equipment and limit the pace of hiring. Companies from Exxon Mobil Corp. to Ciena Corp. announced last week that they would reduce their work forces.

A slowdown would mean little, if any, improvement in employment and may delay until 2003 the economy's return to 3.5% to 4% annual growth. The economy grew at a 1.1% rate in the second quarter and probably expanded at a 2.7% pace in the third quarter, according to the latest Blue Chip Economic Indicators survey.

Household net worth declined 3.4% in the second quarter, the biggest decrease since the third quarter of last year, Fed figures show.

Three straight monthly declines in the Conference Board's leading index are generally considered by economists as a sign of trouble. But a number of analysts said they did not foresee a double-dip recession.

"The U.S. recovery, while certainly subpar and certainly fraught with downside risks, still appears sustainable," said Chris Probyn, chief international economist at State Street Corp. in Boston. "It looks as though we're going to get a decent third quarter."

Jade Zelnick, chief economist at Greenwich Capital Markets Inc. in Greenwich, Conn., also did not see the report as a prediction of an economic downturn.

"The cumulative drop so far has been modest, not even fully erasing May's 0.6% surge," Zelnick said.

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