Aug. 21 (Bloomberg) -- The U.S. slowdown will deepen in the second half of the year as housing continues to slump and unemployment rises, according to a measure designed to predict the economy's direction.

The Conference Board's index of leading indicators fell 0.7 percent in July, more than triple the drop forecast by economists surveyed by Bloomberg News. Separate reports today showed the number of Americans collecting unemployment insurance remained near a five-year high last week and manufacturing in the Philadelphia region shrank for a ninth straight month.

``The economy has really shown one sign after another of weakening,'' Martin Feldstein, a Harvard University economist, said in a Bloomberg Television interview in Jackson Hole, Wyoming, where he's attending an annual Federal Reserve conference. Feldstein said he is ``much more pessimistic than a year ago'' about the outlook.

Feldstein cited the credit crunch and the turmoil engulfing Fannie Mae and Freddie Mac, which threatens to send up mortgage rates. U.S. stock indexes fell and the dollar declined to its lowest level in a week against the euro.

The Standard & Poor's 500 Stock Index rose 0.3 percent to close at 1,277.72. The dollar lost 1 percent against the euro to $1.4898 at 4:10 p.m. in New York.

The Conference Board's index was forecast to decline 0.2 percent, according to the median of 63 economists in a Bloomberg News survey.

`Edge of Recession'

``While we're well along in the credit crunch, we're in the peak of its impact on the economy,'' former Federal Reserve Governor Laurence Meyer, now vice chairman at Macroeconomic Advisers LLC, said in a Bloomberg Television interview in Jackson Hole. ``We're still on the edge of recession right now,'' with growth unlikely to move toward its trend until 2009, he said.

Sagging orders and falling sales hurt factories in the Philadelphia region this month, a report from the Fed Bank of Philadelphia showed. Its general economic index rose to minus 12.7 from minus 16.3 in July. Negative readings signal a decline. The measure averaged 5.1 last year.

``Manufacturing overall still remains in a slump,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``Demand remains weak enough that it's going to maintain pressure on manufacturing for some time.''

Wrong Track

For the first time since January 2007, Americans who said the economy will improve in the next six months outnumbered those who said it will get worse, according to results of the latest Bloomberg/Los Angeles Times poll issued today. Still, about three of every four people surveyed said the U.S. is on the wrong track.

New Jersey Governor Jon Corzine said in an interview on Bloomberg Television toady that the outlook for the economy has worsened over the last two months and a new stimulus plan is needed to spur growth.

``All of the things that are undermining consumer confidence are still there,'' said Corzine, a Democrat and former chairman of Goldman, Sachs & Co. ``We're one bad, unexpected event from really taking out the consumer confidence in a very serious way beyond where we are today.''

Five of the 10 indicators in today's leading indicators report subtracted from the index, led by declines in building permits and stock prices.

Permits Slump

Housing subtracted 0.53 percentage point. Building permits, a sign of future construction, fell 18 percent in July, while work began on the fewest houses in 17 years, the Commerce Department reported this week.

A 0.25 percentage point drag came from the S&P 500, which averaged 1257.3 last month, down from June's 1341.2.

First-time claims for jobless benefits took away 0.23 percentage point from the leading index. Claims rose to an average 420,800 in July, and jumped to a six-year high earlier this month.

Earlier today, a Labor Department report showed initial jobless claims fell to 432,000, a level that still indicates the labor market is deteriorating.

A decline in orders for consumer goods and a drop in the money supply adjusted for inflation, which has the biggest weighting, also hurt the leading index.

Components

Seven of the 10 economic indicators that make up the index are known ahead of time: stock prices, jobless claims, 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 goods, and the money supply adjusted for inflation.

The index of coincident indicators, a gauge of current economic activity, rose 0.1 percent to 106.8, after being unchanged the prior month. The gauge reached a high of 107.3 in October.

The index tracks payrolls, incomes, sales and production, which are the figures used by the National Bureau of Economic Research to determine whether a recession has begun. Feldstein used to head the NBER and remains on the group's panel that dates U.S. economic cycles.

The gauge of lagging indicators rose 0.4 percent following no change the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Americans are spending less as firings mount. Target Corp., the second-largest U.S. discount retailer, said profit fell for the fourth straight quarter after consumers cut purchases of clothing and goods for the home.

``We do not see any indication of meaningful near-term improvement,'' Target's Chief Executive Officer Gregg Steinhafel said on a conference call this week.

To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: August 21, 2008 16:12 EDT