Housing slows down economy

The U.S. leading index, a key barometer of economic conditions, dipped 0.1 percent in July, the Conference Board reported today, impacted by cooling home sales and less new construction.

The index now stands at 138.1. Based on revised data, this index increased 0.1 percent in June and decreased 0.5 percent in May.

From January to July, the leading index fell by 0.7 percent (a -1.4 percent annual rate), but it is still 0.9 percent above its July 2005 level. In addition, weaknesses and strengths among the leading indicators have become roughly balanced in recent months, with five of the 10 indicators that make up the leading index increasing in July.

Declining housing permits, which have significantly impacted the leading index since November 2005, continued to be the largest negative contributor in July, followed by average weekly claims for unemployment insurance (inverted) and interest-rate spread.

The largest positive contributors to the leading index last month were average weekly manufacturing hours, vendor performance and stock prices.

The leading index has decreased in four of the last six months and the leading index has fallen below its most recent high reached in January. At the same time, real GDP grew at a 2.5 percent annual rate in the second quarter, following a 5.6 percent gain in the first quarter. The behavior of the leading index so far suggests that slow to moderate economic growth should continue in the second half of the year.

The Conference Board is a nonprofit research and business group.

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