The index of U.S. leading indicators fell in November, pointing to a slowdown in the economy early next year as companies curb investment and global growth cools.
The Conference Board’s gauge of the outlook for the next three to six months dropped 0.2 percent after a revised 0.3 percent gain in October that was larger than initially reported, the New York-based group said today. The November drop matched the median forecast in a Bloomberg survey.
The threat to the economy from more than $600 billion in automatic government spending cuts and higher taxes next year has prompted companies to pare equipment orders. At the same time, household purchases are being sustained and cheaper borrowing costs are boosting housing, helping underpin the expansion.
“We’re moving sideways in this economy,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “There’s a lot of uncertainty about the fiscal cliff. The fourth quarter is likely to be pretty weak.”
Estimates of 48 economists in the Bloomberg survey ranged from a decline of 0.5 percent to a gain of 0.5 percent.
In another report today, the Commerce Department said the U.S. economy grew at a 3.1 percent annual rate in the third quarter, more than previously reported. The Labor Department said the number of Americans filing first-time claims for unemployment insurance payments rose for the first time in five weeks, a sign further improvement in the jobs market depends on faster economic growth.
Five of the 10 indicators in the leading index contributed to the decrease, led by unemployment claims, stock prices and factory orders.
“The indicators reflect an economy that remains weak in the face of strong domestic and international headwinds, as it faces a looming fiscal cliff,” Ken Goldstein, an economist at the Conference Board, said in a statement. “Growth will likely be slow through the early months of 2013.”
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent after a 0.1 percent gain in the prior month.
The coincident index tracks payrolls, incomes, sales and production -- the measures used by the National Bureau of Economic Research to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators rose 0.4 percent in November after a 0.3 advance the prior month.
Earlier this month, a report showed manufacturing unexpectedly contracted in November for the fourth month in the last six as factory managers grew more concerned about the budget impasse. A gauge of new orders dropped to a three-month low.
Seven of 12 Federal Reserve districts reported “either slowing or outright contraction in manufacturing,” the central bank said last month in its Beige Book business survey.
The economic outlook for next year will be influenced by how lawmakers resolve the budget and chart a course for deficit reduction, according to Kurt McNeil, vice president of sales operations at General Motors Co. (GM:US)
The last three months of 2012 “will be the ninth consecutive quarter of year-over-year growth in the light vehicle selling rate even though business sentiment has been stagnating as the year-end deadline for automatic fiscal tightening approaches,” McNeil said on a Dec. 3 conference call. “Exactly how much growth we can expect next year will depend in part on how Congress and the president resolve the fiscal cliff issue. I will say that markets and consumers hate the uncertainty.”
“So an agreement on ways to reduce long-term federal budget deficits could remove an impediment to growth,” McNeil said. “Until we see some resolution, we’re going to be conservative and wait to issue a formal sales forecast for 2013.”
Meantime, housing is providing some support for economy, and home-improvement retailer Lowe’s Cos. is among those who are optimistic about the recent gains even as the economy faces hurdles.
“We are encouraged by recent trends in new and existing home sales and the appreciation in home prices,” Robert Niblock, chairman and chief executive officer at Mooresville, North Carolina-based Lowe’s, said Dec. 5 at an investor conference. “However, stagnant employment, low income growth and the looming fiscal cliff remain as headwind. Therefore, our outlook assumes modest growth in the home improvement market.”
A report yesterday from the Commerce Department showed the average rate of housing starts from September through November was the strongest since the three months ended August 2008.
The Conference Board in January announced changes in the components of the leading index, the first such move since 1996. The group developed its own Leading Credit Index, which aggregates measures of the yield curve, interest-rate swaps and the Fed’s senior loan officer survey. Other changes include revamped measures of new orders and consumer expectations.
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