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U.S. Economic Gauge Signals Weakness Thu Sep 23, 2004 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. Minutes from the Fed's Aug. 10 policysetting session, released on Thursday, indicate the central bank is confident enough about the economy's vigor that it intends to keep pushing interest rates up. The Federal Open Market Committee minutes, which are published with a one-meeting lag, foresaw "significant cumulative policy tightening likely would be needed" to meet the Fed's goals of price stability and economic growth. 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 from hurricanes that hit Florida and other parts of the Southeast over the past month. WORRIES SPREAD ON OIL U.S. light crude oil traded as high as $49 a barrel on Thursday before settling slightly lower. Speculators decided any loans of oil from the U.S. Strategic Petroleum Reserve to help oil companies whose supply was disrupted by Hurricane Ivan likely would be too small to put a lasting damper on prices. Heftier costs for energy has taken money from consumers' pockets that might be spent on other goods and eventually they are expected to 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." A report on August regional activity in the Midwest, issued by the Federal Reserve Bank of Chicago, pointed to persistent weakness there. Its National Activity Index fell to +0.19 in August from an upwardly revised +0.53 in July, primarily because companies were not hiring strongly. The government's weekly report on initial jobless claims was worse than anticipated by private-sector economists who had foreseen a smaller total of 340,000. 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 data but remained weighed down by doubts about the eventual effect that costlier oil will have on global growth. The Dow Jones industrial average ended down 70.28 points, or 0.70 percent, at 10,038.90. The Nasdaq Composite Index managed to end up a slight 0.72 of a point, or 0.04 percent, at 1,886.43. 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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