Leading Indicators Slip for 3rd Straight Month

The Conference Board's (search) widely watched measure of future economic activity fell for its third consecutive month in September because of rising energy costs that may slow the nation's economy through year-end.

The Conference Board said that its Index of Leading Economic Indicators (search), which tries to gauge future economic growth, fell 0.7 percent in September as prices for fuel and other products from oil soared after hurricanes Katrina (search) and Rita slammed Gulf Coast rigs, platforms and refineries.

The September figure, which was above economists' prediction of a 0.5 percent drop, follows declines of 0.1 percent in August and 0.1 percent in July.

"With three negative reports in a row, it's ugly," said Chris Low, chief economist at FTN Financial. "What we are seeing is two things: it is the storms and a pre-existing condition that came with the end of auto discounting. Part suppliers and their raw materials suppliers benefited from auto sales incentives."

David Ressler, chief economist at Nomura Securities International Inc., said much of the impact on the Conference Board's measure of economic activity came from a rise in jobless claims filed by people who were displaced by the storms.

Besides claims for unemployment insurance, the Conference Board said dampened consumer expectations also pulled down its leading indicators index in September.

Energy prices had been steadily climbing prior to Hurricanes Katrina and Rita, but the storms aggravated shortages and propelled prices higher. This hurt consumer spending and also made certain raw goods more expensive for manufacturers.

"The spike in energy prices is another major factor changing the direction of the economy, worsened by a decline in confidence by both consumers and chief executives," Ken Goldstein, labor economist at the Conference Board said in a statement that accompanied the Conference Board's report.

Goldstein also noted: "Add this to the negative impact of the hurricanes and flooding, resulting in lost jobs and incomes, and lost output, and we could be in for slower economic growth through the end of the year."

FTN's Low said economies of the U.S. Gulf States and the Midwest were hurt by the storms. In the Midwest, he said, trade on the Mississippi, a major shipping artery in the U.S., was halted by flooding. "A bulk of raw materials as well as manufactured goods from the Midwest moves on the Mississippi," he said.

Low said the latest report from the Conference Board likely will reinforce the Federal Reserve's (search) stance toward tighter credit policy. "I think it is very unlikely they will pause (from further interest rate increases) before March," he said.