NEW YORK, Aug 24 (AP): A private sector measure of the economy's health showed the largest drop in a year, and while new jobless claims fell for the second straight week, they remain near the highest levels since 2002. The reports are the latest evidence the languishing American economy remains stuck in low gear.
The New York-based Conference Board said late last week its monthly forecast of future economic activity fell 0.7 per cent in July, far more than the consensus estimate of a 0.2 per cent decline by Wall Street economists surveyed by Thomson/IFR.
The last time the index showed a drop this great was last August, when it fell by 1 per cent.
The largest drag on the index was the decline in building permits, followed by dropping stock prices, rising unemployment claims, a tightened money supply and falling manufacturers' orders for consumer goods. The index has slipped 0.9 per cent for the six months ending in July.
"The economy is stuck somewhere between sluggish growth and recession," said Mark Vitner, senior economist at Wachovia Corp. "We're in economic purgatory."
Lehman Brothers economist Zach Pandl blamed the drop on technical factors, saying a change in New York City's building code, effective July 1, led to a June spike in new permits followed by last month's steep decline. He also attributed part of high jobless claims data to the 13-week extension of unemployment benefits approved by Congress in June.
"The decline in the leading index should therefore not be interpreted as a sign the outlook is quickly deteriorating," Pandl wrote in a research note.
Meanwhile, the labour department's jobless claims data showed new filings dropped to 432,000, down by 13,000 from the previous week, a greater improvement than analysts expected. However, the four-week average climbed to 445,750, the highest level since November 2003.
"The labour market is soft, but not collapsing," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pa. "That's critical. While consumers may be cautious and conservative in their spending, as long as the rate does not spike ... there should be enough income growth to keep the economy muddling along."
Unemployment claims have increased in the past several weeks, partly reflecting an outreach effort by the labour department to notify people of the benefit extension. The action has turned up some people eligible to file new claims.
That effort - coupled with businesses cutting jobs due to higher energy costs, tighter credit markets and a slowing economy - caused claims to spike to a six-year high of 457,000 for the week of August 2.
The number of people continuing to receive benefits last week also dropped slightly to 3.36 million, but the four-week average rose to 3.33 million, its highest level in almost five years.
That number doesn't include the government's extended benefits programme. The labour department estimated an additional 1.29 million unemployed workers are getting benefits under that programme.
Wall Street shrugged off the numbers. Financial stocks rebounded after an analyst upgraded Lehman Brothers Holdings Inc to "buy," saying the investment bank has become a hostile takeover candidate.
Several companies have announced job cuts recently. Newspaper publisher Gannett Co Inc said it would lay off 600 workers, Ford Motor Co said it would cut 300 workers at an engine plant, and chip designer Rambus Inc is trimming 90 jobs.
Meanwhile, Reuters says: US consumer spending will tail off as the effects of government rebates to taxpayers wear off, hurting economic growth in the second half of the year, the director of the Congressional Budget Office said Saturday.
"While it's early, it looks to us like the stimulus helped to support consumption in the middle part of this year," CBO head Peter Orszag told newsmen in an interview on the sidelines of the Kansas City Federal Reserve's annual monetary policy conference.
"One of the things we'll be experiencing later this year is the withdrawal of that effect leading to economic weakness," he said.
Orszag said CBO's analysis refutes economists who say households used their rebate checks primarily to save or pay down debt.
"You would have had much weaker consumption without it," he said.
According to initial government data, the US economy grew at a 1.9 per cent annual rate in the second quarter, a soft pace but enough to push it away from the brink of recession. Analysts said much of that expansion was driven by spending from the rebate checks.
