Index of U.S. Leading Indicators Falls More Than Forecast

By Caroline Fairchild and Alex Kowalski - Jul 19, 2012 7:56 AM MT

The index of U.S. leading economic indicators fell more than forecast in June, a sign the U.S. economic expansion is slowing.

The Conferences Board’s gauge of the outlook for the next three to six months decreased 0.3 percent after a revised 0.4 percent increase in May, the New York-based group said today. Economists projected the gauge would drop by 0.1 percent, according to the median estimate in a Bloomberg News survey.

Retail sales unexpectedly declined in June for a third straight month, indicating that slow progress in job creation is holding back consumer spending, which accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said July 17 that progress in reducing unemployment is likely to be “frustratingly slow.”

“This is consistent with a stall-speed expansion,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the decline. “We’ve certainly lost momentum in the last month whether you’re looking at employment, retail sales, industrial production -- all these major components have deteriorated.”

The Standard & Poor’s 500 Index rose 0.08 percent to 1,373.88 at 10:06 a.m. in New York after the report was released. The yield on the 10-year Treasury note was little changed from late yesterday at 1.5 percent.

Bloomberg Survey

Estimates from 49 economists in the Bloomberg survey ranged from a decrease of 0.3 percent to an increase of 0.2 percent in the Conference Board’s leading index.

Six of the 10 indicators in the index contributed to the decrease, led by a drop in a gauge of manufacturing orders and consumers’ expectations for business conditions. Four indicators increased.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent for a second month.

The coincident index tracks payrolls, incomes, sales and production -- the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

The gauge of lagging indicators rose 0.2 percent in June after increasing 0.3 percent the previous month.

Cooling Growth

U.S. economic growth is cooling after the weakest quarter of hiring by companies in two years. Bernanke, responding to questions during a July 17 testimony to the Senate Banking Committee in Washington, said growth is slowing as business investment cools in response to the European crisis and the prospect of fiscal tightening in the U.S. At the same time, households are restraining spending as unemployment remains elevated and credit is hard to get.

“People are just pulling back, and you’re not likely to see a significant pickup from here,” said Michael Carey, chief economist for North America at Credit Agricole CIB in New York, before the report. “This was certainly a slowdown from the first quarter.”

The U.S. economy expanded at 1.9 percent pact in the first quarter of 2012, down from 3 percent in the prior three months, Commerce Department data show.

One bright spot comes from the homebuilding market. Confidence among U.S. homebuilders increased in July by the most in almost a decade. The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, a report from the Washington-based group showed July 17.

To contact the reporter on this story: Caroline Fairchild in Washington at cfairchild2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net