Originally created 05/20/05

Two reports offer mixed signals for economy

NEW YORK - The economy offered conflicting signs of growth on Thursday. While a closely watched gauge of future business activity fell for the fourth month in a row in April, job hunters got an encouraging cue when the number of new people signing up for unemployment insurance dropped sharply last week.

The Conference Board said its Composite Index of Leading Economic Indicators fell 0.2 percent last month to 114.5, though economists pegged the economy as still solid. The decline was in line with what analysts expected for the indicator, which is closely followed because it is meant to forecast the economy's health over the coming three to six months.

The April drop followed a revised 0.6 percent decline in March and a 0.1 loss in February.

Also Thursday, the Labor Department reported that the number of new people signing up for jobless benefits dropped sharply last week. New applications filed for unemployment insurance declined by a seasonally adjusted 20,000 to 321,000 for the week ending May 14. The decline, larger than expected, was the biggest drop in claims seen in a month.

Investors appeared to respond positively to the job claims report, as stocks were mostly higher Thursday though blue chip issues struggled.

"The Leading Economic Indicators show continued economic growth, but a definite loss of forward momentum," said Ken Goldstein, economist at The Conference Board, a non-profit business research group.

Economists were not worried about the fourth consecutive decline in the index because the components that offered positive signs - such as manufacturers' new orders for consumer goods and materials and average weekly initial claims for unemployment insurance - are the most critical barometers.

Also, there were plenty of special factors such as an early Easter - which hurt consumer spending - and turmoil in Iraq that hobbled the economy.

Given higher interest rates, "we are going to see slower growth in the second half, but if it weren't for those special factors I would have been more concerned," said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, N.C.

"There is clearly underlying strength in the economy," he said, adding that the components that are strengthening "tend to give consistent readings about the direction of the economy. The ones weakening have given a lot of false signals."

Vitner said there is a chance the Federal Reserve will "take pause" and won't push up the federal funds rate as high as 4 percent because the economy is slowing.

But most economists like Joel Naroff, president of Naroff Economic Advisors, expect more rate increases throughout this year.

"Until the (Federal Reserve) sees that the upward creep in inflation has stopped, they will continue to keep tightening," Naroff said.

He added, "Right now, I am not worried... The economy is moderating, but growth is still solid."

The five of the 10 components of the leading index that also strengthened in April included building permits, average weekly manufacturing hours and manufacturers' new orders for nondefense capital goods.

The components that fell were the index of consumer expectations, real money supply, interest rate spread, stock prices and vendor performances.

The index of coincident indicators, which measures the current economy, rose 0.2 percent in April to 119.6. The gain followed a 0.2 percent increase in March and a 0.1 percent increase in February. Three of the four components that make up the index rose in April. The one component that declined was industrial production.

The index of lagging indicators, which looks back at the past six months, rose 0.4 percent in April to 99.7. That was followed by a 0.2 percent decrease in March, and a 0.3 percent increase in February. Six of the seven components advanced, led by commercial and industrial loans outstanding. The negative contributor was average duration of unemployment.


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