Economy may be recovering
By Rebecca Gomez
Associated Press
NEW YORK — A key indicator of where U.S. economic activity is heading fell in March but preliminary data for April suggest a turnaround.
The New York-based Conference Board said its Index of Leading Economic Indicators fell by 0.2 percent last month to 110.6, pushed down by worries over higher oil prices, the war and potential terrorist attacks. The result was in line with analysts' expectations.
"People have been focused on the war. It seems to have been a drag on the economy," said Ed Peters, chief investment officer at PanAgora Asset Management in Boston. "I also expect it will turnaround in the coming months."
But the bigger threat to economic stimulation comes from consumers' lower expectations, raising "the specter of a fall-off in consumption growth," said Conference Board economist Ken Goldstein.
"This is significant because without much investment or export growth, only consumption has been fueling the economy," Goldstein said.
The Index of Leading Economic Indicators measures where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year.
Consumer spending, which accounts for two-thirds of U.S. economic activity, has been the force holding up the struggling economy, but according to the Conference Board, the desire to spend appears to be tapering off.
"The combination of the slowing in consumption growth and the delayed start to more investment has effectively extended the soft spot that the economy has been in," Goldstein said.
He added that the end of the Iraq war has not boosted business capital investments or consumer spending, as some had predicted or wished.
"A decade ago, the end of fighting (in the Persian Gulf War) didn't deliver much impetus to the domestic economy," Goldstein said. "As was the case then, an end to the fighting may do little to change trends in the U.S. economy."
Although the index was down for a second consecutive month, the Conference Board said the information available so far for April suggests that the decline will not continue.
The leading index is made up of ten indicators, some of which are already in for April and are reversing recent declines. Goldstein said the index may show a slight improvement in terms of money supply, the stock market, housing starts and the yield curve.
"What happens to the rest of the indicators could balance that, offset that or reinforce it — and that's what we don't know yet," Goldstein said.
The index fell a revised 0.5 percent in February after a 0.1 percent rise in January.
Half of the 10 indicators rose in March, such as stock prices and manufacturers' new orders for consumer good and materials. Those that fell included building permits, average weekly initial claims for unemployment and consumer expectations.
But Peters thinks all the concerns about a slowdown in consumer spending are more of a mirage than a real menace.
"People have been worried about that for a long, long time. As long as unemployment stays below 6 percent, there isn't really a big problem with consumer spending," he said. "It got soft mostly because of the war. People got caught up watching the war, instead of doing what Americans are supposed to be doing — spending."
