U.S. Economic Gauge Signals Weakness

Thu Sep 23, 2004
By Glenn Somerville

WASHINGTON (Reuters) - A key gauge of future economic activity weakened for a third straight month in August as costlier oil spread worry among consumers and businesses, a report from a business research group showed on Thursday .

The Index of Leading Indicators, issued by the Conference Board, fell 0.3 percent in Aug to 115.7 after a matching 0.3 percent decline in July and a 0.1 percent drop in June, raising questions about the durability of the economy's expansion.

The index measures a basket of 10 indicators of performance from consumer confidence to applications for new building permits, and is intended to signal the economy's direction three to six months down the road.

Its steady decline contrasts with a view expressed on Tuesday by Federal Reserve policymakers, who voted to raise U.S. interest rates for a third time in three months, that economic output has "regained some traction" since summer.

"We doubt this signals an imminent further sharp downturn in growth but the data make uncomfortable viewing and are not consistent with the Fed's view that the economy is regaining traction," said economist Ian Shepherdson of High Frequency Economics Ltd. in Valhalla, N.Y.

Separately on Thursday, the Labor Department said the number of applicants for an initial week of jobless aid climbed a sharper-than-expected 14,000 last week to 350,000. But it attributed most of the gain to disruptions caused by a series of hurricanes that hit Florida and other parts of the Southeast over the past month.

WORRIES SPREAD ON OIL

Oil prices were just over $48 a barrel on Thursday, down slightly on speculation the U.S. government might release some crude from its huge reserves but still within sight of an Aug. 20 record high of $49.40. That has taken money from consumers' pockets that might be spent on other goods and eventually will filter into production costs.

"There is concern about weak consumption and the pace of wage and salary increases," said Conference Board economist Ken Goldstein. "Consumers worry about their wages and salaries which could limit spending. Businesses worry about their ability to raise prices and to cover rising costs."

The report on initial jobless claims was worse than anticipated by private-sector economists who had foreseen a smaller total of 340,000.

"The increase is ... mostly hurricane-related," a department spokesman said. "It can be related to the recent hurricanes in Florida."

A department spokesman said last week's claims number primarily reflected Hurricanes Charley and Frances and that Hurricane Ivan, which struck a week ago and caused widespread damage, has yet to make its presence felt on claims.

EMPLOYMENT WOES

Analysts say the claims data have been hard to interpret in recent weeks. Large numbers of people have faced repeated evacuations from Florida and other parts of the Southeast during the past month, in some cases delaying filing of claims, and the volatility may persist for several more weeks.

Financial markets did not respond directly to the latest economic indicators but remained weighed down by doubts about the eventual effect that costlier oil will have on the pace of global growth.

The Dow Jones industrial average was down more than 70 points, or 0.7 percent, in early afternoon while the Nasdaq Composite Index was slightly in negative territory. Bond prices also were lower and the dollar was broadly weaker against other major currencies.

A four-week moving average of initial jobless claims, which irons out short-term volatility, edged up to 341,000 from 339,000 -- a level economists associate with moderate hiring.

The number of people who remained on state unemployment rolls after claiming an initial week of jobless claims edged up to 2.88 million.

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