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Index suggests tepid economic growth

Associated Press / August 20, 2010

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NEW YORK — A private research group’s gauge of future economic activity edged up only slightly in July, suggesting growth will be sluggish for the rest of the year. The Conference Board said its index of leading economic indicators rose 0.1 percent, after dropping 0.3 percent in June. Economists polled by Thomson Reuters had expected a gain of 0.2 percent.

The gauge had risen sharply from spring 2009 through March of this year. It has flattened out since then. Businesses aren’t building up stocks as quickly as they did after the recession ended. Consumers are saving more and spending less. The Conference Board’s economist, Ken Goldstein, said this resulted in “a weak economy with little forward momentum. However, the good news is that the data do not point to a recession.’’

Wells Fargo Securities estimates the economy will grow 2 percent or less for the rest of the year. The government had estimated the economy grew 2.4 percent in the April-to-June quarter, but that is expected to be revised lower next week.

One boost to the leading indicators index was the difference between 10-year interest rates and the overnight interest rate, which the Federal Reserve has kept at a record low near zero. A wide gap between the two can mean investors expect economic activity to pick up.

While still historically high, that gap has shrunk this summer. Investors sought the safety of 10-year Treasury notes, driving down the yield. Low consumer confidence and a drop in building permits were the biggest drags on the index.