Aug 2005 Financial News

U.S. economic barometer points to slower growth

Aug 19, 2005

EILEEN ALT POWELL
ASSOCIATED PRESS

NEW YORK—An important gauge of future economic activity rose a sluggish 0.1 per cent in July, suggesting that higher oil prices and rising interest rates are tempering U.S. economic growth prospects.

The New York-based Conference Board said yesterday that its Composite Index of Leading Economic Indicators registered 138.3 in July following a revised increase of 1.2 per cent to 138.1 in June. The index was unchanged in May.

The July results were in line with economic analysts' projections.

The index is watched closely because it is designed to predict economic activity over the next three to six months.

Ken Goldstein, the board's chief economist, said in a statement that the July figures "suggest moderate growth into the fall."

Goldstein added that "the spike in energy prices is one factor in this outlook." And, he said, both businesses and consumers appeared to be more cautious about spending and investment decisions.

In Washington, meanwhile, the U.S. labour department said the number of newly laid off Americans filing for unemployment benefits rose slightly last week but still remained at levels indicating a strong labour market.

The department said applications for unemployment benefits totalled 316,000 last week, a gain of 6,000 from the prior week.

That increase was above the 2,000-person rise economists expected, but the level of laid-off workers remained within the range that signals the labour market is improving.

Employers created 207,000 new jobs last month, the best showing in three months, helping to keep the unemployment rate at a low level of 5 per cent.

So far this year, a strong economy has generated an average of 191,000 new jobs per month, better than 2004's average of 183,000.

The latest report on unemployment disappointed Wall Street, which already was jittery over volatile oil prices.

The Dow Jones industrial average rose only 4.22, or 0.04 per cent, to 10,554.93.

Broader stock indicators also slipped. The Standard & Poor's 500 index dropped 1.22 to 1,219.02, and the Nasdaq composite index lost 9.07, or 0.42 per cent, to 2,136.08.

Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis, Mo., said the leading indicators "are telling us the economy is poised to do better."

At the same time, "we have headwinds from high energy prices" already depressing consumer confidence. Consumer spending accounts for two-thirds of the U.S. economy.

Although Thayer expects strong economic performance in the third quarter, he believes it could begin weakening in the final three months of 2005 "if those oil prices remain very high."

The Conference Board's report said six of the 10 indicators that make up the index contributed to July's increase: a drop in claims for unemployment insurance; the interest rate spread; stock prices; building permits; consumer expectations; and manufacturers' orders for non-defence capital goods.

Negative contributors were vendor performance, the money supply and manufacturers' new orders for consumer goods. Weekly manufacturing hours were unchanged.