Leading Indicators Up Strongly in June
Thursday July 21, 12:11 pm ET
By Eileen Alt Powell, AP Business Writer
Leading Indicators Up Strongly in June, but Analysts Say Economy Is Slowing
NEW YORK (AP) -- An important gauge of future economic activity rose strongly in June, but analysts believe the nation's economy is in the process of slowing from last year's torrid pace.
The New York-based Conference Board said Thursday that its Composite Index of Leading Economic Indicators increased 0.9 percent in June to 137.7 after showing no change the month before and a 0.2 percent rise in April.
The June increase was the largest since a 0.9 percent rise in December 2003, the board said.
In Washington, meanwhile, the Labor Department reported that the number of Americans filing new claims for unemployment benefits plunged last week by the largest amount in 2 1/2 years, reflecting a slowdown in layoffs in the auto industry.
The Labor Department reported that new benefit claims dropped by 34,000 to a total of 303,000 as the labor market continued to strengthen.
Government analysts attributed the big improvement to a slowdown in layoffs in the auto industry, which had seen big increases in recent weeks as auto plants shut down temporarily to retool for the new model year.
The drop of 34,000 was the largest one-week improvement since a decline of 35,000 in the week of Dec. 21, 2002. The decline was more than triple the 10,000 drop that private analysts had been predicting.
Economists saw the latest statistics as evidence that the economic expansion is continuing, though at a slower rate.
Anthony Chan, managing director and senior economist at JPMorgan Fleming Asset Management in Columbus, Ohio, said the leading index performance in June was solid, with broad-based gains among most of its 10 components.
"It tells us that the economic expansion is probably on track," Chan said.
At the same time, however, he said that the economy's growth rate is slowing from 4.4 percent in 2004; he predicted the economy would expand 3.5 percent this year and about 3.25 percent in 2006.
"After last year's 4.4 percent, you have significant room to slow down without putting yourself in danger," Chan said.
The leading index figures were based on revised calculations of the index, which is closely watched as a signal of growth in the U.S. economy over the next six months.
The latest figures incorporate two revisions -- a statistical trend adjustment as well as a new way of accounting for the yield spread, a component of the index that measures the difference between the yield on the 10-year Treasury note and the federal funds rate.
The last time the gauge underwent a major revision was in 1996, shortly after the Conference Board, an industry-backed research group, took over calculating the index from the Commerce Department in Washington, D.C.
Without the revisions, the index of leading indicators would have shown an increase of 0.5 percent in June following a dip of 0.2 percent in May, the Conference Board said.
The board said the revised index has increased at a 1.2 percent annual rate over the past six months, down from a peak of about 10 percent at the end of 2003.
Gail D. Fosler, the board's chief economist, told reporters that this is consistent with weaker economic growth.
"We believe the industrial economy is slowing down, that it is slowing down quite quickly," Fosler said. She said, however, that she did not believe a recession was in the offing, saying "we are way far away from anything that looks like a recession signal."
Seven of the 10 indicators that make up the leading index increased in June: consumer expectations, vendor performance, the money supply, a decline in unemployment claims, the interest rate spread, stock prices and building permits. One component, manufacturers' new orders for nondefense products, declined, while weekly manufacturing hours and manufacturers' new orders for consumer goods were unchanged.
The index of coincident indicators, which measures current economic activity, rose 0.2 percent in June to 120.5 after increasing 0.1 percent in May to 120.2.
The index of lagging indicators, a measure of past economic performance, was up 0.3 percent in June to 119.7 after advancing 0.4 percent in May to 119.4.
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