WASHINGTON, 21 October 2005 — A gauge of future US economic activity declined in September for the third month in a row, indicating slower growth for the rest of the year, the Conference Board said yesterday. The Conference Board said its index of leading economic indicators fell 0.7 percent in September, as the impact of the hurricanes in the Gulf of Mexico began to be felt in the economic data. Economists were expecting the index to fall 0.5 percent.
The index fell 0.1 percent in both July and August, “suggesting that the economy was losing steam this summer and would continue to slow down in the fall,” said Ken Goldstein, chief economist for the private research group. Then the hurricanes hit, sending energy prices higher, depressing consumers and cutting hundreds of thousands of jobs. Five of the 10 indicators decreased in September, led by jobless claims and consumer expectations. Four indicators increased in September, led by delivery times and building permits.
Energy prices are not directly measured in the leading indicators. The leading index has been slowing for more than a year and began to decline in July. The behavior of the leading index is “consistent with the economy continuing to expand more moderately in the near term,” the Conference Board said.
Factories in the US Mid-Atlantic region boomed in October after recovering from a post-Katrina slump as new orders jumped, but a key inflation measure hit its highest in 25 years, a survey showed.
The Philadelphia Federal Reserve Bank said its business activity index rebounded to 17.3 in October from 2.2 in September, beating economists’ forecasts for a rise to 10.0. Any reading above zero points to growth in the region’s manufacturing sector.
Activity had nearly stalled in September in the aftermath of the hurricane, while costs doubled as energy prices rose. “It was a strong report across the board. Prices were strong, employment was strong. It seems to point to continued solid growth in the economy,” said Rick Klingman, head of US government trading at ABN Amro in New York.
Prices continued to surge in October, with the key prices paid index jumping to 67.6 from 52.7, reaching its highest level since November 1980, according to the Philadelphia Fed. Analysts said the report showed the effects of Katrina that devastated parts of the US Gulf Coast in late August are starting to wash out of the data.
But the sharp rise in both prices paid and prices received, where the index rose to 32.6 from 8.6, suggested inflationary pressures are indeed mounting and the Federal Reserve will have to make good on its vow to curb rising prices. A key indicator of future growth, the new orders index, jumped in October to 18.6 after a minus 0.5 reading in September. The employment index also rose sharply, to 17.0 from 2.7 in September. The regional survey is one of the first indicators of US manufacturing every month and is often used to gauge the state of factories nationwide.
Meanwhile, first-time jobless claims, a rough guide to the pace of layoffs, fell for the second week in a row, dropping 35,000 last week to a seasonally adjusted 355,000, the Labor Department said. That was below Wall Street forecasts for 368,000 new claims. Labor attributed about 40,000 of the new claims to people put out of work by hurricanes Katrina and Rita, bringing the cumulative total of unadjusted claims stemming from the storms to 478,000 since Sept. 3.
Before the storms, jobless claims figures had shown the US labor market stabilizing at healthy levels. “In the aftermath of Katrina, the effect on the labor market from the fallout has been limited,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “Like what the Fed has suggested, the US economy was more than strong enough to absorb the blows of Katrina. The labor market is still pretty resilient,” Swonk said.
The closely watched four-week moving average of claims, which many consider a better measure of the unemployment situation because it flattens weekly volatility, also dropped for the second straight week. The four-week moving average last week fell to 376,000 from 396,000, its lowest level in more than a month.
