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U.S. leading indicators fall for fifth straight month

Section: Daily Dispatches

By Carlos Torres
Bloomberg News Service
Thursday, November 18, 2004

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WASHINGTON -- A barometer of future U.S. economic
activity fell for a fifth month in October, the longest
stretch of declines since 1995, signaling that the
world's largest economy isn't likely to accelerate in
coming months.

The 0.3 percent drop in the Conference Board's index
of leading economic indicators matched a decline in
September that was lower than first reported, the
New York-based research group said. The index
has been falling since June.

quot;The recent declines in the leading index have not
been large enough, nor have the persisted for long
enough, to signal an end to the current economic
expansion,quot; the Conference Board said in a statement.

Consumers' economic outlook slumped last month as
oil prices reached a record, stock prices dropped and
the presidential candidates attacked each other with
renewed vigor in the weeks before the election. Energy
prices have since retreated and an uncontested vote
boosted stocks and confidence this month. The
leading index is down 1.4 percent at an annual pace
over the last six months, short of the amount that
would signal recession.

The index quot;is too gloomy but it is a reminder that all is
not yet OK,quot; said Ian Shepherdson, chief U.S.
economist at High Frequency Economics, a Valhalla,
N.Y., consulting firm. Some of the components that
dragged down the index quot;have stopped deteriorating
or have rebounded,quot; he said.

Economists projected a 0.1 percent decrease in the
index, following a previously reported 0.1 percent drop
in September, based on the median of 56 forecasts
in a Bloomberg News survey. Forecasts ranged from
a 0.2 percent drop to a 0.1 percent rise.

U.S. Treasury notes declined. The 4 1/4 percent note
due in November 2014 dropped 1/8 to 100 27/32 at
10:03 a.m. in New York The yield rose more than 1
basis point to 4.14 percent.

Seven of the 10 indicators the Conference Board
uses to derive the index contributed to the fall.

Besides falling consumer expectations, a drop in the
money supply, a smaller spread in the yield between
the Treasury's 10-year note and the overnight bank
lending rate, a drop in building permits, a shorter
factory workweek, a drop in factory orders for capital
goods, and faster supplier deliveries that suggest it's
easier for companies to meet demand accounted for
the drop.

quot;Expect no better than moderate growth for now,quot; said
Richard Berner, chief U.S. economist at Morgan
Stanley in New York, before the report

The Federal Reserve is expected to report today that
its index of manufacturing activity in the Philadelphia
area declined to 23.1 this month from 28.5 in October,
the median of 50 estimates in a Bloomberg News
survey of economists.

Fewer applications for unemployment insurance
benefits in October, increased factory orders for
consumer goods, and an improvement in stock prices
helped temper the decrease.

First-time employment claims dropped to 334,000 in
the week ended Nov. 13, bringing the average for the
month to 335,500, the Labor Department reported
today. Claims averaged 341,000 a week in October.
The Standard amp; Poor's 500 index has averaged
1163.3 so far this month, compared with an October
average of 1118.10.

The fifth straight drop in the index is the longest string
of declines since 1995, Conference Board data show.

Three consecutive decreases in the index were once
thought to foreshadow recession, according to a rule
of thumb that has now been discarded because it
raised warning flags too often. Measuring the severity
and breadth of the declines is important in making
more precise forecasts about the direction of the
economy, according to the Conference Board's Ken

A decline of at least 3.5 percent on an annualized
basis over six months provides, in addition to changes
in the Conference Board's coincident and lagging
indicators, a more accurate signal, according to

Using the six-month criterion, the index correctly
called six of the seven contractions since it was
introduced in 1959. The index failed to call only the
2001 contraction, which Commerce Department
figures show was the mildest since World War II.
By comparison, the index has fallen at least three
months in a row 22 times since 1959.

quot;I'm upbeat about the economy in general and the
fourth quarter in particular,quot; said Ron Sargent, chief
executive of Staples in an interview Nov. 16. quot;If you
look at some of the economic data, it's very strong.quot;

Framingham, Mass.-based Staples, the world's top
office-supplies retailer, said two days ago that
third-quarter earnings rose 26 percent compared to
the same period last year and sales increased 12

The economy created 337,000 jobs in October, the
most since March, and non-auto retailers sold 0.9
percent more goods last month, beating economists'
expectations, separate government reports showed
this month.

Energy prices have retreated this month, alleviating
concerns consumer spending would buckle during the
holidays. Crude oil for December delivery is down 16
percent as of the 2:30 p.m. close of trading yesterday
on the New York Mercantile Exchange since reaching
a high of $55.67 a barrel on Oct. 25. That price was
the highest recorded since futures began trading in
1983. Retail gasoline prices dropped for a second
week in the seven days ended Nov. 15 to reach an
average $2.01 a gallon.

quot;The index's weakness this month seems a bit out
of place,quot; said Joseph Abate, a senior economist at
Lehman Brothers Inc. in New York, before the report.
quot;Our suspicion is that the index will return to positive
territory as early as next month.quot;

The November index is likely to get a boost from a
rebound in consumer expectations and stock prices.
The University of Michigan's gauge of consumer
sentiment about the economy in the next one to five
years rose to 88.7 this month from 83.8 in October,
according to a preliminary report issued last week.

The economy is likely to grow 3.5 percent at an
annual rate this quarter after expanding 3.7 percent
from July through September, according to the
median estimate of economists surveyed this
month by Bloomberg News. Growth has averaged
3.1 percent per quarter in the last three decades.

The Conference Board's index of coincident
indicators, a gauge of current economic activity,
rose 0.3 percent in October following a 0.1 percent
increase the previous month. The index tracks
payrolls, incomes, sales, and production.

The index of lagging indicators rose 0.2 percent last
month, compared with a 0.1 percent increase in


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