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Leading indicators index drops 0.1% in July

Cooler housing market suggests economy is slowing

NEW YORK -- An indicator of future economic activity dropped in July, suggesting a slowdown in economic growth in coming months. A cooling housing market was the main culprit.

The Conference Board, an industry-based research group in New York, said its index of leading economic indicators fell 0.1 percent last month, after an increase of 0.1 percent in June and a 0.5 percent decrease in May. Analysts had expected an increase of 0.1 percent.

``The important thing is that it's been down four out of the last six months, and that does signal the economy is slowing down," said Gary R. Thayer, chief economist with A.G. Edwards & Sons Inc. in St. Louis. ``But the fact is, the index is still where it was about a year ago. We're probably in for a soft landing rather than a hard landing in the economy."

The index, whose aim is to forecast economic activity in the next three to six months, stood at 138.1, below its high this year of 139.1 in January.

Ken Goldstein, labor economist at The Conference Board, said a slowdown in the housing sector is becoming more pronounced, causing a drag on the economy. He also pointed to higher interest rates, lower consumer confidence, and higher energy prices as factors keeping growth in check.

Investors have been embracing signs that economic growth is moderating since that could relieve inflationary pressures and allow the Federal Reserve to leave interest rates alone. At its last meeting, the Fed stopped raising interest rates for the first time since June 2004 but hinted it could if it became alarmed about inflation.

Five of the ten components of the index rose in July, led by weekly manufacturing hours, stock prices, and consumer expectations.

In the latest bad sign for the housing industry, the Commerce Department reported Wednesday that the number of building permits issued in July dropped 6.5 percent, and new home construction fell 2.5 percent .

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