U.S. Leading Economic Indicators Probably Dropped in September

By Timothy R. Homan

Oct. 20 (Bloomberg) -- The index of U.S. leading economic indicators probably fell in September for a third month, led by declines in manufacturing, housing and stocks that may weaken growth into 2009, economists said before a report today.

The Conference Board's gauge, a measure of the economy's direction over the next three to six months, fell 0.1 percent after a 0.5 percent drop the previous month, according to the median forecast in a Bloomberg News survey.

Mounting foreclosures and rising job losses caused a record drop in consumer sentiment this month and may bring the economic expansion to a halt. Still, inflation is cooling as the economy weakens, giving Federal Reserve policy makers scope to cut interest rates at their meeting next week.

The leading index will ``provide a fairly bleak reading of the prospects for the U.S. economy,'' said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California.

The New York-based private research group's gauge is due at 10 a.m. Estimates of the 44 economists surveyed ranged from a drop of 0.6 percent to a gain of 0.5 percent. The measure has posted only two monthly gains so far this year.

Seven of the 10 components of the leading index are known ahead of time: jobless claims, stock prices, 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, bookings for capital equipment and the money supply adjusted for inflation.

Shrinking Economy

Economists surveyed by Bloomberg in the first week of October anticipated the economy contracted at a 0.2 percent annual pace last quarter and will shrink at a 0.8 percent pace in the last three months of the year. Declines in consumer spending will tip the economy into a recession, the survey showed.

The housing slump is showing no indication of abating. Building permits, a sign of future construction, dropped 8.3 percent in September, matching the lowest level since 1981, and single-family home starts fell to a 26-year low, the Commerce Department reported last week.

Manufacturing is also faltering as sales here and abroad weaken. The average factory employee worked 40.7 hours a week in September, the lowest level since 2005, the Labor Department said earlier this month.

Stocks Sink

Lower stock prices in September also pushed down the leading index. The Standard & Poor's 500 index averaged 1217 in September, down from 1281.47 in August. The index averaged 1011.91 during the first half of this month.

A deteriorating labor market is one reason consumer spending, the biggest part of the economy, is faltering. The U.S. has lost 760,000 jobs so far this year, and the jobless rate held at a five-year high of 6.1 percent in September. More job cuts are on the way.

Brunswick Corp., the maker of recreational boats, said this month it plans to eliminate 1,450 jobs and expedite the closing of four plants amid ``the most turbulent economic times in recent history.''

``The poor economy and the accompanying weak consumer sentiment have pressured marine markets, eroding the demand for boats and engines these past few months at a swifter pace than originally anticipated,'' Dustan McCoy, chief executive officer of the Lake Forest, Illinois-based company, said in an Oct. 9 statement.

                        Bloomberg Survey

====================================
                              LEI

                             MOM%
====================================

Date of Release              10/20
Observation Period           Sept.
------------------------------------
Median                       -0.1%
Average                      -0.1%
High Forecast                 0.5%
Low Forecast                 -0.6%
Number of Participants          44
Previous                     -0.5%
------------------------------------
Action Economics              0.0%
Argus Research Corp.         -0.5%
Banc of America Securitie    -0.1%
Bank of Tokyo- Mitsubishi    -0.1%
BMO Capital Markets          -0.3%
BNP Paribas                  -0.2%
Citi                          0.5%
Commerzbank AG               -0.3%
Credit Suisse                 0.2%
Daiwa Securities America      0.2%
DekaBank                     -0.1%
Desjardins Group              0.1%
Deutsche Bank Securities     -0.1%
Deutsche Postbank AG         -0.1%
Dresdner Kleinwort            0.2%
DZ Bank                      -0.2%
First Trust Advisors         -0.2%
H&R Block Financial Advis    -0.3%
Helaba                        0.1%
HSBC Markets                  0.2%
IDEAglobal                   -0.4%
Informa Global Markets       -0.2%
Insight Economics             0.1%
Janney Montgomery Scott L    -0.3%
Landesbank Berlin             0.1%
Landesbank BW                -0.2%
Lloyds TSB                   -0.5%
Maria Fiorini Ramirez Inc    -0.1%
Merk Investments             -0.4%
Merrill Lynch                -0.3%
Moody's Economy.com           0.0%
Nomura Securities Intl.       0.5%
PNC Bank                     -0.3%
RBS Greenwich Capital         0.4%
Schneider Trading Associa    -0.4%
Stone & McCarthy Research     0.0%
TD Securities                -0.3%
Thomson Financial/IFR        -0.6%
Unicredit MIB                -0.5%
University of Maryland       -0.5%
Wachovia Corp.                0.2%
Wells Fargo & Co.             0.5%
WestLB AG                    -0.1%
Westpac Banking Co.          -0.4%
====================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net