Leading Indicators in U.S. Fell More Than Forecast

By Bob Willis

Sept. 18 (Bloomberg) -- The index of U.S. leading economic indicators fell more than forecast in August, signaling the growth outlook dimmed even before the latest collapse in financial markets.

The Conference Board's gauge fell 0.5 percent after a 0.7 percent decline the prior month, the New York-based private research group said today. The index points to the direction of the economy over the next three to six months.

The three-year housing slump that triggered the credit- market meltdown, a loss of jobs and slowdown in spending may bring an end to the economic expansion. Plunging stock markets this month following the collapse of Lehman Brothers Holdings Inc. and federal takeover of American International Group Inc. reflect a breach of confidence that is likely to deepen the downturn.

``The Wall Street crunch has definitely rolled over into Main Street,'' said Lindsey Piegza, a market analyst at FTN Financial, which correctly forecast the decline. ``It's a very dismal picture all around.''

Manufacturing in the Philadelphia region unexpectedly expanded in September as orders and shipments improved, a separate report showed. The Federal Reserve Bank of Philadelphia's general economic index increased to 3.8 this month from minus 12.7 in August. Positive readings signal growth.

Fed Infusion

The Fed today almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.

The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.'' The Bank of England, the Bank of Canada and the Swiss National Bank also participated.

Stocks held gains and Treasury securities remained lower following the reports. The Standard & Poor's 500 index was up 1.8 percent at 1,176.85 at 10:27 a.m. in New York, lifted by optimism the cash infusion from the central bank would ease financial strains.

The leading index was forecast to decline 0.2 percent, according to the median of 57 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.6 percent to a gain of 0.2 percent.

No `Cushion'

``The economy right now is so slow that it doesn't have much cushion for shocks,'' Ken Goldstein, an economist at the Conference Board, said in a statement. ``We may not see any signs of improvement until well into the second half of 2009.''

Six of the 10 indicators in today's report subtracted from the index, led by faster supplier deliveries to factories that signal fewer orders are coming in. A slump in building permits and a jump in first-time jobless claims also factored into the decline.

Earlier today, the Labor Department reported initial jobless claims last week rose 10,000 to 455,000, led by a jump in Louisiana reflecting job losses in the wake of Hurricane Gustav. While the Labor Department said claims would have fallen excluding the state, the overall trend in applications still points to deterioration in the labor market, economists said.

Spending to Stall

Economists surveyed by Bloomberg in the first week of September anticipated the longest expansion in consumer spending on record will come to an end this quarter. Purchases will probably stall, according to the survey median, the weakest reading since the last three months of 1991.

The housing slump is deepening, threatening the financial system and leading to this week's government takeover of AIG and Lehman's bankruptcy.

Building permits, a sign of future construction, fell 8.9 percent in August, while work began on the fewest houses in 17 years, the Commerce Department reported yesterday.

The economy has lost 605,000 jobs so far this year and the jobless rate reached a five-year high of 6.1 percent in August.

More dismissals may be on the way. Chrysler LLC's Chief Executive Officer Bob Nardelli said the automaker may need to cut more jobs and trim other costs should U.S. lawmakers fail to approve $25 billion in loans to help the industry develop fuel- efficient vehicles.

Nardelli said he hadn't ``seen any signs'' of a U.S. economic recovery, during a Sept. 12 interview. ``It's critically important that we get this economy re-fired, that we get the energy back into this economy, that we get consumer confidence back,'' he said.

Stocks' Retreat

Higher stock prices in August prevented the leading index from dropping even more, an underpinning unlikely to be repeated this month, economists said. The Standard & Poor's 500 index averaged 1234.96 in the first 17 days of September, down from 1281.47 in August.

The index of coincident indicators, a gauge of current economic activity, fell 0.1 percent after no change in July.

The index tracks payrolls, incomes, sales and production, which, combined with gross domestic product, are the figures used by the National Bureau of Economic Research to determine whether a recession has begun.

The gauge of lagging indicators increased 0.4 percent for a second month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net