Leading Indicator Index Signals Lackluster Growth in 1st Half

MBA (3/21/2008 ) Velz, Orawin
The Conference Board's index of leading indicators—a gauge of future business activity three to six months ahead—fell by 0.3 percent in February, following a 0.4 drop in January (previously reported as a 0.2 percent drop). The index has fallen for five consecutive months.
The last time the index declined for this long was in early 2001, as the economy entered a recession. The 0.3 percent decline puts the index at its lowest level since September 2005, when consumer confidence plummeted following the surge in energy prices as a result of Hurricane Katrina. According to The Conference Board, economic growth will be weak this spring and a small economic contraction is possible.

In a separate report, weekly initial unemployment claims—one of the 10 indicators making up the index of leading indicators—increased by 22,000 to 378,000 for the week ending March 15. This is the highest reading since early October. The Labor Department noted that the claims may have been affected by an auto industry strike that shut down several plants across the Midwest. The four-week moving average also continues to trend up to the highest reading since October 2005.

Continuing claims, which gauge the pace of hiring rather than layoffs, increased by 32,000 to 2.865 million for the week ending March 8. This is the highest level since August 2004. Recent trends in continuing claims suggest that businesses have been reluctant to hire retrenched further, suggesting that employment in March may be weak again.

A separate report from the Philadelphia Federal Reserve showed that the area’s manufacturing sector continued to struggle, as activity declined again in March but at a more moderate pace. The general business index was up 6.6 points to a minus 17.4 in March. (Readings below zero indicate contraction.) Manufacturing in the Philadelphia region contracted for the fourth consecutive month. The last time the index showed negative readings for that long was in 2003.

The Philly Fed survey is the second regional Fed manufacturing survey for March. On Monday, the New York Fed released the Empire State Manufacturing Survey showing the index declining to a record low, surpassing the previous record low reached in November 2001, when the economy was in a recession.

Long-term yields were little changed. The yield on 10-year Treasury note stayed around 3.33 percent on Thursday, about the same as the rate on Wednesday.