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Economy Losing Steam?

"Slumdog Millionaire" child star Azharuddin Mohammed Ismail, 10, left greets director Danny Boyle as he leaves after a press conference in Mumbai, India, Wednesday, May 27, 2009.
AP Photo/Rajanish Kakade
The Index of Leading Economic Indicators, a widely watched gauge of future economic activity, fell in October for the fifth straight month, suggesting that the U.S. economy may be slowing, a private research group reported Thursday.

The Conference Board said that its main indicator of future economic growth fell 0.3 percent in October, following declines of the same size in September and August. The October decline was steeper than the fall of 0.1 percent that economists had been expecting.

Ken Goldstein, an economist at the New York-based research group, called the latest decline in the index "a clear signal that the economy is losing steam." He also said that "worries about where the economy is headed may cause some strategic plans to be put on hold."

However, the Conference Board also said that while weakness in the economy has become more widespread in recent months, the recent declines in the index have not been large enough or persistent enough to indicate that the current economic expansion is coming to an end.

The index is calculated by combining a number of factors believed to be good indicators of the direction of the economy over the next three to six months, such as manufacturing, interest rates, consumer expectations, stock prices and money supply.

Separately, the Labor Department reported that new claims for unemployment insurance dropped by a seasonally adjusted 3,000 to 334,000 last week, the lowest level since the end of October. New filings increased by 5,000 the previous week.

The drop in new claims was a hopeful sign for the labor market, which has continued to struggle despite growth in other parts of the economy. Businesses have been cautious about hiring new workers, though in recent months there have been some signs of a pickup in hiring.

Recent signs of strength in the economy have led the Federal Reserve to begin nudging short-term interest rates higher in an effort to stave off inflationary pressures, which can build up when the economy is expanding. On Wednesday the Labor Department reported that consumer prices rose 0.6 percent in October, their biggest increase in five months.

However, rising short-term interest rates can also curtail the ability of businesses to borrow, which can in turn lead to slower economic growth. The continuing decline in the leading economic index may cause concern among economists that the economy could slow down more than many people had been expecting.