The index of U.S. leading economic indicators probably fell for a third straight month in August, suggesting slower growth over the next two quarters, according to economists surveyed before today's industry report. The Conference Board's gauge of how the world's largest economy will perform over the next three to six months probably slipped 0.2 percent, the median forecast of 59 economists in a Bloomberg News survey. The index fell 0.3 percent in July and 0.1 percent in June after 14 straight months without a decline. The report is set for release at 10 a.m. in Washington. Crude oil prices that reached a record in August and slack job growth have damped consumer spirits and curbed spending. Federal Reserve policy makers raised interest rates Sept. 21 for a third time this year and said in a statement that the economy is regaining ``traction'' after slowing in the second quarter.
``The economy is moving into a lower gear,'' said senior economist David Sloan, of 4Cast Ltd., a consulting firm in New York. ``We're now getting restrained by a number of factors, too, most notably higher energy prices.'' Also today, the Labor Department may report the number of U.S. workers filing new claims for jobless benefits last week kept within a range that suggests payrolls will keep expanding after a year of uninterrupted growth, economists said. States probably received 337,000 initial applications for unemployment compensation in the week that ended Sept. 18, based on the median forecast. That compares with 333,000 the prior week. The report will be released at 8:30 a.m. in Washington.
Leading Indicators
Three months of contraction in the index of leading economic indicators is sometimes viewed as a sign the economy may tip into recession. That's not the case now, according to the Conference Board, a New York-based private research group. An annualized decline of 3.5 percent or more in the index over a six-month period is a more accurate signal of a recession, according to Ken Goldstein, a Conference Board economist. A 0.2 percent decline would leave the index unchanged in the six months ended in August. ``I would view a third straight decline in the index of leading economic indicators as disappointing, but it's not a sign of recession,'' said Stuart Hoffman, chief economist for PNC Financial Services Group Inc. in Pittsburgh. ``It's more consistent with slower growth and this idea of a soft patch. It shouldn't set off any alarm bells.''
Weighting
The Conference Board assigns weights to each of 10 components of the index and derives it by adding or subtracting monthly changes. Seven of the 10 component numbers are known before the report, and six of those are expected to detract from the index in August: initial jobless claims, the yield curve, building permits, stock prices, consumer expectations and supplier deliveries. Factory hours were unchanged last month. The Conference Board estimates the remaining three index components: new orders for consumer goods, orders for capital goods and the money supply adjusted for inflation. The yield curve, or the spread between the yield on overnight bank loans and 10-year Treasury notes, is the most influential component. The spread narrowed in August after central bankers on Aug. 10 raised their target for the benchmark overnight bank lending rate a quarter point to 1.5 percent. The average yield on the 10-year government note dropped in August as investors became less concerned inflation would flare up. The Fed raised its target rate to 1.75 percent two days ago, which may again cause the yield curve to make a negative contribution to September's leading economic indicator index.
`Traction'
``Output growth appears to have regained some traction and labor market conditions have improved modestly,'' Fed policy makers said in announcing their decision to raise the rate. Consumers were less optimistic in August, when a measure of consumer expectations fell to 88.2 from 91.2 in July, according to a University of Michigan report. The Standard & Poor's 500 stock index dropped 16.9 points, or 1.5 percent, last month. Companies added an average 104,000 jobs a month from June through August, about a third of the average in the previous three months, according Labor Department figures. The U.S. average pump price for gasoline is a record $1.81 a gallon so far this year, according to the U.S. Energy Department. That's up from $1.56 a gallon last year and $1.34 in 2002.
General Mills Inc., the No. 2 U.S. cereal maker, said this week that profit for the quarter ended Aug. 29 fell 19 percent because of higher costs and factory closings. The decline is the first the Minneapolis-based company experienced in two years. Economists have dropped their estimates for economic growth in recent months, resulting in a median forecast of a 3.7 percent annualized gain for the gross domestic product this quarter, according to a Bloomberg survey this month. The prior estimate was 3.9 percent. The economy expanded 2.8 percent at an annual pace last quarter following a 4.5 percent gain in the first three months of the year. ///www.bloomberg.com