By Andrew Balls in Washington
FT.com
July 23 2004

An index of leading US economic indicators declined in June for the first time in 15 months, disappointing consensus forecasts of a flat reading.

Half the components of the Conference Board's leading indicators index dropped last month, with the measures for building permits, factory work-weeks, supply deliveries, the money supply and interest rates all registering declines.

Measures of consumer expectations, stock prices, jobless claims and consumer and capital goods orders all increased for the month.

"Strong economic performance in May gave way to a weaker June," said Ken Goldstein, an economist at the Conference Board.

"The data reflect a strong economic environment, but one with less momentum than last month."

Separately, the Chicago Federal Reserve reported that its national activity index dropped sharply in June, reflecting weakness in production and employment categories.

Retail sales were weak in June and the manufacturing work-week shrank.

The US economy created 112,000 jobs last month - half the level expected - although economists caution that part of the weakness in the June data may have resulted from business closures around the time of President Ronald Reagan's funeral.

"It raises the question of how much of this is real and how much is data illusion," said Peter Kretzmer, economist at Bank of America.

"By the time of the July employment report it should be clear how much of the slowdown was temporary."

Testifying before Congress this week, Alan Greenspan, the Federal Reserve chairman, played down the importance of recent weak economic data, saying that it reflected a temporary impact on consumer spending from higher energy prices.

The slowdown is likely to be short lived and will not prevent the Fed from continuing with a measured pace of interest rate rises, Mr Greenspan said.

The Conference Board said that the leading indicators index was higher in the second quarter than in the first three months of the year, in spite of June's drop and downward revisions to earlier months.

The reading is consistent with gross domestic product growth at a 4-5 per cent annual rate in the near term, the Conference Board said.

The weaker-than-expected reading in the leading indicator index was explained by the drop in building permits in June, economists said.

A report from the Commerce Department on Tuesday showed that US housing starts dropped 8.5 per cent in June, in part because of rising long-term interest rates.

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