Leading indicators fall for fifth month

Thursday, Nov. 18, 2004 | 9:20 a.m.

BLOOMBERG NEWS

A barometer of future U.S. economic activity fell for a fifth month in October, the longest stretch of declines since 1995, signaling that the world's largest economy isn't likely to accelerate in coming months.

The 0.3 percent drop in the Conference Board's index of leading economic indicators matched a decline in September that was lower than first reported, the New York-based research group said. The index has been falling since June.

"The recent declines in the leading index have not been large enough, nor have the persisted for long enough, to signal an end to the current economic expansion," the Conference Board said in a statement.

Consumers' economic outlook slumped last month as oil prices reached a record, stock prices dropped and the presidential candidates attacked each other with renewed vigor in the weeks before the election. Energy prices have since retreated and an uncontested vote boosted stocks and confidence this month. The leading index is down 1.4 percent at an annual pace over the last six months, short of the amount that would signal recession.

The index "is too gloomy, but it is a reminder that all is not yet OK," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, a Valhalla, N.Y.-based consulting firm. Some of the components that dragged down the index "have stopped deteriorating or have rebounded," he said.

Economists projected a 0.1 percent decrease in the index, following a previously reported 0.1 percent drop in September, based on the median of 56 forecasts in a Bloomberg News survey. Forecasts ranged from a 0.2 percent drop to a 0.1 percent rise.

Seven of the 10 indicators the Conference Board uses to derive the index contributed to the fall.

Besides falling consumer expectations, a drop in the money supply, a smaller spread in the yield between the Treasury's 10-year note and the overnight bank lending rate, a drop in building permits, a shorter factory workweek, a drop in factory orders for capital goods and faster supplier deliveries that suggest it's easier for companies to meet demand, accounted for the drop.

"Expect no better than moderate growth for now," said Richard Berner, chief U.S. economist at Morgan Stanley in New York, before the report

The Federal Reserve is expected to report today that its index of manufacturing activity in the Philadelphia area declined to 23.1 this month from 28.5 in October, the median of 50 estimates in a Bloomberg News survey of economists.

Fewer applications for unemployment insurance benefits in October, increased factory orders for consumer goods and an improvement in stock prices, helped temper the decrease.

First-time employment claims dropped to 334,000 in the week ended Nov. 13, bringing the average for the month to 335,500, the Labor Department reported today. Claims averaged 341,000 a week in October. The Standard & Poor's 500 index has averaged 1163.3 so far this month, compared with an October average of 1118.10.

The fifth straight drop in the index is the longest string of declines since 1995, Conference Board data show.

Three consecutive decreases in the index were once thought to foreshadow recession, according to a rule of thumb that has now been discarded because it raised warning flags too often.