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Index of U.S. Leading Economic Indicators Fell 0.2%

The index of U.S. leading indicators fell 0.2 percent in June, the second decline in three months, signaling the world’s largest economy will cool.

The decrease in the New York-based Conference Board’s gauge of the prospects for the economy in the next three to six months compares with the median estimate for a 0.3 percent decline in a Bloomberg News survey of economists and follows a 0.5 percent gain in May.

Federal Reserve Chairman Ben S. Bernanke yesterday repeated his forecast for a “moderate” pace of growth even as he said the outlook remains “unusually uncertain.” Recent reports on housing, retail sales and the labor market have pointed to weakness in the economy as the second half begins.

“We’re looking at a very subdued recovery,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who forecast the 0.2 percent decline. “We will see some growth because there is some very gradual improvement in the labor market, but companies are still very cautious to hire.”

Sales of previously owned homes in the U.S. fell less than economists estimated in June, a report from the National Association of Realtors showed today. Purchases dropped 5.1 percent to a 5.37 million annual rate, the group said.

The Standard & Poor’s 500 Index rose 2.3 percent to 1,094.47 at 10:47 a.m. in New York after the home-sales report and as companies from United Parcel Service Inc. to AT&T Inc. increased profit forecasts.

Estimates for the Conference Board’s index ranged from no change to a decline of 0.5 percent, according to projections from 57 economists in a Bloomberg survey.

Jobless Claims

A report from the Labor Department today showed that the number of Americans applying for jobless benefits last week rose more than forecast, increasing by 37,000 to 464,000.

Four of the 10 indicators in the leading index contributed to the decrease in June, led by average weekly manufacturing hours. Supplier deliveries and stock prices also subtracted from the monthly gauge.

Five components advanced, including the gap between 10-year Treasury note yields and the overnight fed funds rate. One component, orders for non-defense capital goods, was unchanged.

Weak economic data in the U.S. last month pushed down the Standard & Poor’s 500 Index, which averaged 1,083.36 in June, down 3.7 percent from the previous month.

Coincident Indicators

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in June after a 0.5 percent gain the previous month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.

The gauge of lagging indicators increased 0.1 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Some company leaders say growth is tepid. Dow Chemical Co. Chief Executive Officer Andrew Liveris said the economy is in a “slow recovery.”

“We are still living in this kind of opaqueness that should worry us all,” the head of the biggest U.S. chemical maker said in a July 16 interview in New York. “We are in a slow recovery that has a lot of zigs and zags.”

Revised Forecasts

Economists at Goldman Sachs Group Inc. last week reduced their estimate of second-quarter growth to a 2 percent annual pace from 3 percent after data showed the U.S. trade gap widened in May to an 18-month high while retail sales fell for a second straight month. JPMorgan Chase & Co. analysts reduced their projection of growth in the second half by 0.5 percentage point to 2.75 percent.

Federal Reserve policy makers trimmed their forecasts for U.S. growth and raised unemployment projections at their June 22-23 meeting. For 2011, officials expect growth ranging from 3.5 percent to 4.2 percent, down from 3.4 percent to 4.5 percent.

Bernanke yesterday told lawmakers in Washington that central bank policy makers “expect continued moderate growth, a gradual decline in the unemployment rate and subdued inflation over the next several years.”

He also said central bankers “remain prepared” to act as needed to aid growth even as they get ready to eventually raise interest rates from almost zero and shrink a record balance sheet.

Delivery Times

Seven of the 10 indicators that make up the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods and the money supply adjusted for inflation.

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

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