Leading Indicators in U.S. Probably Declined on Stocks, Housing
The index of leading U.S. economic indicators probably fell in January for the fourth consecutive month, as deterioration in the stock and housing markets signaled weakening growth, a survey of economists showed before a report today.
The Conference Board's gauge slid 0.1 percent, after falling 0.2 percent in December, according to the median estimate in a Bloomberg News survey of 54 economists. The measure points to the direction of the economy over the next three to six months.
The worst housing slump in a quarter century, a cooling job market and shrinking credit have taken a toll on consumer spending and raised the risk of a recession. Federal Reserve policy makers are prepared to cut interest rates further to preserve growth, Chairman Ben S. Bernanke told lawmakers last week.
“The economy is definitely very weak,'' said Aaron Smith, senior economist at Moody's Economy.com in West Chester, Pennsylvania. “We still have a big drag from homebuilding, and the consumer is tapped out. Our forecast calls for a mild recession.''
The Conference Board, a New York-based research group, will release its report at 10 a.m. Estimates ranged from a decline of 0.3 percent to a gain of 0.2 percent.
Index Components
Seven of the 10 economic indicators that make up the index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours.
The Conference Board estimates the remaining three — new orders for consumer goods, the yield curve and money supply. The report may show more components weighed on the leading indicators index in January than gave it a boost.
“The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,'' Bernanke told the Senate Banking Committee on Feb. 14. Later that day, former Fed Chairman Alan Greenspan said in a speech in Houston that the economy is “clearly on the edge'' of a recession.
Fed policy makers said “relatively low'' interest rates may be needed for some time as they cut their growth forecast and voted for the fastest easing of monetary policy in two decades, according to minutes of the Fed's January conference calls and meeting released yesterday savings account payday advance. The economy will expand 1.3 percent to 2 percent in the fourth quarter from the same period a year before, Fed officials forecast. In October, they predicted growth of 1.8 percent to 2.5 percent.
One drag to the leading index came from the Standard & Poor's 500 index, which averaged 1379 in January, down from 1479 the prior month. The S&P gauge has fallen three consecutive months, the longest losing streak since 2003.
Building permits, a sign of future construction, also weighed the index down. Permits fell 3 percent to a 1.048 million annual rate in January, the Commerce Department reported yesterday. Housing starts remained near the lowest level since 1991.
Some of the factors that contributed to the leading measure have worsened recently. The Reuters/University of Michigan consumer expectations index, which economists view as a proxy for future spending, rose in January from December, though the latest figures show the gauge fell in February to the lowest since 1992.
First-time applications for jobless benefits dropped to a weekly average of 326,500 in January from 343,300 the prior month, adding to the leading index. Still, the U.S. lost jobs in January for the first time in four years, raising concern that a pillar of support for consumer spending is weakening.
The Labor Department may report today at 8:30 a.m. that first-time unemployment claims rose by 1,000 to 349,000 last week, a level consistent with a slowing labor market, according to the median estimate of economists in a Bloomberg survey.
Americans already are showing reluctance to spend. Best Buy Co., the largest U.S. consumer-electronics chain, on Feb. 15 cut its full-year profit forecast on lower sales of digital cameras, video games and home theaters.