NEW YORK – As the Federal Reserve chairman testified for a second day before Congress, noting that the decline in home construction would continue to hinder economic growth, the Conference Board reported that its Leading Economic Indicator Index decline 0.3 percent in June, after rising a revised 0.2 percent in May. Fed chief Benjamin S. Bernanke said that the only thing keeping the economy from falling further down as consumer spending slows was an expansion in manufacturing exports.
“It signals more weakness in the economy,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn., told Bloomberg News. “Housing hasn’t bottomed yet, the underlying trend in consumer spending is still on the sluggish side, and business-investment growth seems to have slowed lately,” he said.
The leading index, which points to the economy’s outlook over the next three to six months, was forecast to fall 0.1 percent, according to the median of economists’ projections in a Bloomberg News survey.
While firms were more downbeat about current conditions, a jump in sales led to a more positive outlook on the future. Strength in manufacturing will help the economy withstand the slump in housing and slower consumer spending, economists said.
Five of the 10 components of the leading index contributed to the decline. Building permits, a signal of future construction, subtracted 0.2 percent from the index. Permits dropped 7.5 percent last month to a 1.406 million annual rate, the fewest since June 1997, the Commerce Department reported yesterday.
“Declines in residential construction will likely continue to weigh on economic growth over coming quarters,” Bernanke said yesterday in testimony to the House Financial Services Committee. Still, the economy may “expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008.” Bernanke’s testimony before the Senate today was identical to his remarks yesterday.
