- The Washington Times - Tuesday, August 20, 2002

NEW YORK (AP) A key gauge of U.S. economic activity fell in July amid stock market volatility and mounting reports of corporate shenanigans, but the drop wasn't as bad as had been predicted.
The New York-based Conference Board yesterday reported that 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.
Experts said the decline confirmed that the economy is still in a shaky recovery, but they were encouraged that consumers were continuing to buy big-ticket items like cars and homes.
"The economy has run into a soft patch, and we are trying to get out of the rut," said Sung Won Sohn, economist for Wells Fargo & Co.
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 past four months that the 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 the latest evidence shows no significant weakening in the consumer markets, with home and car buying continuing to be strong."
While consumers continued to snap up expensive goods, they cut back on discretionary spending like clothes, travel and restaurant meals, Mr. Sohn said. There were signs, however, that some discretionary spending may be increasing.
Home-improvement retailer Lowe's reported a 42 percent increase in second-quarter earnings and raised forecasts for the third quarter that beat analysts' expectations. And shares of toy retailer Toys R Us rose after the company narrowed its loss to $17 million in the second quarter.
"The stock market is improving, and consumers are hitting the malls again," Mr. Sohn said. "Hopefully, even businesses would feel better about future sales prospects to start spending money on capital equipment."
The Conference Board's 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 reductions if economic conditions warrant.


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