VOL. 123 | NO. 37 | Friday, February 22, 2008
Business Group Says Economic Growth Will Weaken Further in Coming Months
By CANDICE CHOI | AP Business Writer
NEW YORK (AP) - A gauge of future economic activity dropped for the fourth consecutive month in January, a business group said Thursday, suggesting the U.S. economy could weaken further in the near future.
The Conference Board said its index of leading economic indicators fell 0.1 percent last month, after a revised 0.1 percent drop in December and a 0.4 decline in November.
The index is designed to forecast the direction of the nation's economy over the next three to six months. Persistent, pronounced declines over several months could signal a recession is in store.
With the decline, the leading index has fallen 2.0 percent over the last six months, the biggest drop since early 2001. Weakness among the components that make up the index has also been more widespread in recent months.
"What we're seeing is that it's very, very close to capitulation," said Brian Bethune, an economist with Global Insight.
The Conference Board report comes a day after the Federal Reserve released its updated forecast for slower economic growth, higher unemployment and higher inflation. The dismal outlook for the year was despite the central bank's aggressive interest rate cuts in January.
Also Thursday, the Labor Department said the number of newly laid-off workers filing claims for unemployment benefits fell last week, but the larger-than-expected drop was seen as only a temporary improvement. Analysts noted claims offices in California were closed for a day last week for a state holiday, giving laid off workers one less day to file claims.
The four-week average for claims, which gives a better picture of labor market trends, rose to 360,500, which was the highest level since claims spiked in October 2005.
Wall Street held onto slim gains following the Conference Board report and the Philadelphia Federal Reserve's report of a lower-than-expected February manufacturing index.
The leading index in recent months is approaching a trend that historically precedes recessions, said Ataman Ozyildirim, an economist at the Conference Board. Typically, there is a 2.5 percent drop over six months ahead of a recession, he said. In the months leading up to the 2001 recession, the leading index dropped 2.2 percent over six months.
"Every recession is a bit different, but we're becoming more confident that we're nearing those conditions (for a recession)," he said.
The coincident index, which measures where the economy is at present, edged up 0.1 percent in January. That slow but steady growth suggests the economy is not currently in a recession, said Ken Goldstein, the Conference Board's labor economist.
Despite the gain, however, the six-month growth rate in the coincident index slowed to 0.4 percent, down from a 1.1 percent rate from January 2007 to July 2007.
Weakness in components that make up the index, which for the past two years was concentrated in the housing market, has started spreading, too.
Four of the 10 components fell in January; stock prices, building permits, manufacturers' new orders for nondefense capital goods and interest rate spread.
The advancing components were real money supply, average weekly initial claims for unemployment insurance, consumer expectations and vendor performance.
Average weekly manufacturing hours and manufacturers' new orders for consumer goods and materials were unchanged.
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