Economic Growth Losing Steam

NEWYou can now listen to Fox News articles!

U.S. economic growth should lose steam in coming months, a research group said Thursday, indicating a clampdown on credit markets will continue to take its toll on the broader economy.

The Conference Board said its index of leading economic indicators dropped a sharp 0.6 percent in August, slightly higher than the 0.5 percent fall analysts were expecting. The index rose a revised 0.7 percent in July, after slipping 0.1 percent in June. The erratic pattern reflects the ongoing uncertainty over the impact of the credit crisis on the overall economy.

The Conference Board report is designed to forecast economic activity over the next three to six months.

"Economic growth is likely to continue in the near term, although at a slower pace," said Ken Goldstein, labor economist for the Conference Board.

For growth to continue, however, Goldstein said there will be two potential hurdles to overcome — business confidence and the "wealth effect," which has been hit by falling home prices.

"This loss of household assets, if combined with weak employment growth, could have a negative impact on consumer spending going forward," Goldstein said.

The Conference Board report tracks 10 economic indicators. Only one of those indicators, real money supply, advanced in August.

The negative components, starting with the largest, were consumer expectations, unemployment claims, stock prices, building permits, vendor performance, manufacturers' new orders for non-defense capital goods, interest rate spread, and manufacturers' new orders for consumer goods.

Weekly manufacturing hours held steady.

With the latest report, the cumulative change in the index over the past six months has increased 0.5 percent.

The report was taken before the Federal Reserve's decision to cut a key interest rate by a half point, a move that sent stocks soaring Tuesday. The bigger-than-expected cut was an effort to ensure the country isn't pushed into a recession by turbulence in the financial markets.

The credit crisis started with rising defaults in subprime mortgages — home loans made to people with weak credit histories. Analysts believe these problems, along with declining consumer confidence, could lead to a recession.

Also on Thursday, the Labor Department said jobless claims declined last week by 9,000, the lowest level in seven weeks. Analysts were expecting a slight rise in claims.

Stocks dipped Thursday following weaker-than-expected earnings at Bear Stearns and caution ahead of testimony before Congress from Federal Reserve Chairman Ben Bernanke. In prepared remarks, Bernanke said the credit crisis has created "significant market stress" and gave fresh assurances that regulators would step in to curb the fallout.

The Dow slipped 30.24, or 0.22 percent, to 13,785.32.

The Standard & Poor's 500 index fell 0.24 percent to 1,525.40 and the Nasdaq composite index fell 0.28 percent to 2,659.09.