Tuesday, April 22, 2003

War weighs on economic index

By Rebecca Gomez
The Associated Press

NEW YORK - A forecast of the U.S. economy's direction pointed southward in March, indicating more slow growth, as consumers and businesses were fixated on the war.

But with the conflict virtually over, preliminary data for April were more promising - holding out hope for a possible turnaround this year.

The New York-based Conference Board said its Index of Leading Economic Indicators, which measures where the economy is headed in the next three to six months, fell by 0.2 percent last month to 110.6. That was in line with analysts' expectations and followed a revised drop of 0.5 percent in February and an 0.1 percent increase in January.

Conference Board economist Ken Goldstein raised concern over a possible slowdown in consumer spending, which accounts for two-thirds of all economic activity.

"In addition to intensified nervousness over oil prices, war and the potential of a terror attack, it is the more fundamental plummeting of consumer expectations that raises the specter of a fall-off in consumption growth," he said.

Ed Peters, chief investment officer at PanAgora Asset Management in Boston, agreed the war was "a drag on the economy" in March, but he believes consumer consumption will remain on track now that the battle appears over.

"People have been worried about that for a long, long time. As long as unemployment stays below 6 percent, there isn't really a big problem with consumer spending," he said. "It got soft mostly because of the war. People got caught up watching the war, instead of doing what Americans are supposed to be doing - spending."

Some had hoped the end of the war would motivate businesses to make big capital investments, but the Conference Board warned that history may repeat itself.

"A decade ago, the end of fighting (in the Persian Gulf War) didn't deliver much impetus to the domestic economy," Goldstein said. "As was the case then, an end to the fighting may do little to change trends in the U.S. economy."

The Index of Leading Economic Indicators, which includes 10 components, stood at 100 in 1996, its base year.

For March, half of the factors rose, such as stock prices and manufacturers' new orders for consumer goods and materials. The negative contributors were a drop in building permits and real money supply, higher average weekly unemployment claims and lower consumer expectations.

Some of the indicators are already in for April and are reversing recent declines, particularly in money supply, the stock market, building permits and the yield curve.

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