U.S. Leading Indicator Index Fell More Than Forecast

Nov. 21 -- The index of leading U.S. economic indicators fell more than forecast in October, led by a plunge in building permits and an increase in firings, a private report showed.

The Conference Board's gauge fell 0.5 percent after a revised 0.1 percent increase that was smaller than previously estimated, the New York-based group said today. The measure points to the direction of the economy over the next three to six months.

The biggest housing slump in 16 years may be starting to ripple through the economy as it undermines confidence. A separate report today showed consumer sentiment continued to flag this month, which may put a damper on spending during the holiday season.

``It's pointing to a slowing economy,'' Ryan Reed, an economist at National City Corp. in Cleveland, said before the report. ``It's a slowdown led by housing.''

Treasury securities held earlier gains and stock prices extended declines following the reports. The yield on the benchmark 10-year note fell to 4.01 percent at 10:07 a.m. in New York, from 4.10 percent late yesterday.

Economists forecast the index would decline 0.3 percent, after an initially reported 0.3 percent gain in September, according to the median of 60 estimates in a Bloomberg News survey. Projections ranged from no change to a 1 percent drop.

Economy to Slow

``The data are pointing to a continued slow economy,'' Ken Goldstein, a Conference Board economist, said in a statement. ``It might even slow a little more after the holidays.''

The index is down at an annual pace of 1 percent over the last six months, short of the approximate 4 percent drop that Conference Board economists have said is required to signal recession.

Seven of the index's 10 components declined, led by the 6.6 percent slump in building permits that was reported by the Commerce Department yesterday. The drop subtracted 0.18 percentage point from the leading index.

Initial jobless claims averaged 327,500 in October, up from 313,100 the prior month, and subtracted 0.14 percentage point. A report today from the Labor Department showed initial claims last week dropped to 330,000 from a seven-month high of 341,000 the prior week.

Sentiment Drops

A drop in the Reuters/University of Michigan's consumer expectations gauge last month cut 0.11 percentage point from the leading economic indicators. The gauge, which some economists consider a harbinger of future spending, dropped to a two-year low this month, according to a report today.

Rising energy prices, increasing unemployment and continued weakness in housing concern Americans and may lead to the weakest holiday sales season in five years, according a forecast by the National Retail Federation, a Washington-based trade group.

J.C. Penney Co., Starbucks Inc. and FedEx Corp. are among companies that have recently lowered profit forecasts.

``We're going to have a mediocre holiday season as consumer spending is a bit hemmed by rising gasoline and falling home values,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.

Seven of the components of the leading economic indicators index are known before the report: initial jobless claims, consumer expectations, building permits, supplier deliveries, the yield curve, stock prices and factory hours.

Estimates

The Conference Board estimates money supply adjusted for inflation, new orders for consumer goods and orders for non- defense capital goods.

The economy is projected to grow at a 1.5 percent annual rate this quarter after expanding at a 3.9 percent pace in the previous three months, according to a Bloomberg News survey taken earlier this month.

Federal Reserve policy makers lowered their growth forecasts in October and worried about credit-market losses, according to the minutes of their Oct. 31 meeting issued yesterday. The decision to reduce the benchmark interest rate target by a quarter percentage-point was described as a ``close call.''

The records of the gathering were accompanied by estimates and language that highlighted risks to growth. Traders anticipate the central bank will be forced to trim borrowing costs again next month.

Cisco Systems Inc., the world's largest maker of networking equipment, said earlier this month that declining orders from automobile and financial companies are curbing growth.

`Soft Landing'

``The U.S. economy, to most of my customers, felt like we were coming in a soft landing,'' John Chambers, chief executive officer of Cisco, said on a conference call Nov. 7. An ``air of conservatism'' is ``affecting their purchasing.''

The Conference Board's index of coincident indicators, a gauge of current economic activity, was unchanged in October after increasing 0.2 percent in September. The index tracks payrolls, incomes, sales and production.

The gauge of lagging indicators rose 0.3 percent after a 0.4 percent gain in September. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.