Housing market drop bodes ill for economy

The index stands at 138.1; the high of the year was 193.1.

NEW YORK (AP) — An indicator of future economic activity dipped in July, suggesting a slowdown in economic growth in coming months. A cooling housing market was the main culprit.

The Conference Board, an industry-based research group based in New York, said its Index of Leading Economic Indicators fell 0.1 percent last month following an increase of 0.1 percent in June and a 0.5 percent decline in May. Analysts had expected an increase of 0.1 percent.

"The important thing is that it's been down four out of the last six months, and that does signal the economy is slowing down," said Gary R. Thayer, chief economist with A.G. Edwards & Sons Inc. in St. Louis, Mo. "But the fact is, the index is still where it was about a year ago. We're probably in for a soft landing rather than a hard landing in the economy."

The index, which is aimed at forecasting economic activity in the next three to six months, stood at 138.1, below its high so far this year of 139.1 in January.

Ken Goldstein, labor economist at The Conference Board, said a slowdown in the housing sector is becoming more pronounced, causing a drag on the economy. He also pointed to higher interest rates, lower consumer confidence and higher energy prices as other factors keeping growth in check.

However, he said it did not appear that the economy was headed for a hard landing.

"The economy is cooling but isn't likely to stall out," Goldstein said.

Investors have been embracing signs that economic growth is moderating since that could relieve inflationary pressures and allow the Federal Reserve to leave interest rates alone. At its last meeting, the Fed stopped raising interest rates for the first time since June 2004 but hinted it could resume tightening if it became alarmed about inflation.

Other news

Five of the 10 components of the leading index rose in July, led by weekly manufacturing hours, stock prices and consumer expectations. The biggest drag on the index was a marked decline in housing permits, followed by jobless claims and money supply.

The cool-down in the housing sector has been a major focus for economists, since it affects a number of other key areas of the economy including construction, mortgage lending, lumber, and makers of materials and supplies used in building homes.

In the latest bad sign for that industry, the Commerce Department reported Wednesday that the number of building permits issued in July — one of the components of the Leading Economic Indicator index — dropped 6.5 percent, and new home construction fell 2.5 percent, the fifth decline in the past six months.

In the labor market, the number of laid off workers filing claims for unemployment insurance fell last week by the largest amount in a month, the Labor Department reported Thursday. The drop, which was larger than analysts had been expecting, was not likely to change economists' view that the labor market is softening.