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More Storm Clouds For Economy

A key gauge of U.S. economic activity fell in July, a further sign of a shaky economic recovery as stock market gyrations affected consumer and business spending.

The New York-based Conference Board on Monday reported its Index of Leading Economic Indicators fell 0.4 percent to 111.7, after falling a revised 0.2 percent in June. Analysts had expected a July decline of 0.5 percent.

"The economy has hit a soft spot, and some people are calling it an air pocket," said Mark Vitner, senior economist with Wachovia Securities.

The index measures where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. July's decline was the third time in the last four months that the indicators index failed to increase.

Contributing most to last month's decline were stock prices, the Conference Board said.

"Volatile financial markets, corporate scandals and sagging consumer expectations are trouble spots," said conference board economist Ken Goldstein. "But latest evidence shows no significant weakening in the consumer markets, with home and car buying continuing to be strong."

Vitner said the car sales are significant because people "worried about their jobs don't go out and buy cars."

He believes consumers are now feeling better about the economy than they did in July.

"We would look for the numbers to come back in a couple months and that should help the leading index bounce back in the fall," Vitner said.

The coincident index, which measures current economic activity, rose 0.1 percent in July to 115.0. The index of lagging indicators, which reflects changes that have already occurred, rose 0.1 percent last month to 100.7.

Citing uncertainties about the strength of the economic recovery, the Federal Reserve has left short-term interest rates at 40-year lows this year. Fed policy-makers last week decided to hold rates steady, but opened the door to future reductions if economic conditions warrant.

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